S 2016 10-K

Sprint Corp (S) SEC Annual Report (10-K) for 2016

S Q2 2016 10-Q
S 2016 10-K S Q2 2016 10-Q

Table of Contents


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

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x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2016

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

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SPRINT CORPORATION

(Exact name of registrant as specified in its charter)

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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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

Common stock, $0.01 par value

New York Stock Exchange

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Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   x     No   o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  o     No   x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K.    x

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 (Do not check if smaller reporting company)

o

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

Aggregate market value of voting and non-voting common stock equity held by non-affiliates of Sprint Corporation at September 30, 2015 was $2,342,009,176

COMMON STOCK OUTSTANDING AT MAY 13, 2016 : 3,974,592,358 shares


Table of Contents


SPRINT CORPORATION

TABLE OF CONTENTS

Page

Reference  

Item

PART I

1.

Business

1

1A.

Risk Factors

13

1B.

Unresolved Staff Comments

21

2.

Properties

21

3.

Legal Proceedings

21

4.

Mine Safety Disclosures

22

PART II

5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities

23

6.

Selected Financial Data

25

7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

26

7A.

Quantitative and Qualitative Disclosures about Market Risk

64

8.

Financial Statements and Supplementary Data

64

9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

65

9A.

Controls and Procedures

65

9B.

Other Information

66

PART III

10.

Directors, Executive Officers and Corporate Governance

67

11.

Executive Compensation

67

12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

67

13.

Certain Relationships and Related Transactions, and Director Independence

68

14.

Principal Accounting Fees and Services

68

PART IV

15.

Exhibits and Financial Statement Schedules

69






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SPRINT CORPORATION

SECURITIES AND EXCHANGE COMMISSION

ANNUAL REPORT ON FORM 10-K

PART I



Item 1.

Business

FORMATION

Sprint Corporation, incorporated in 2012 under the laws of Delaware, is a holding company, with operations conducted by its subsidiaries. Our common stock trades on the New York Stock Exchange (NYSE) under the symbol "S."

On July 9, 2013, Sprint Nextel Corporation, a Kansas corporation organized in 1938 (Sprint Nextel), completed the acquisition of the remaining equity interests in Clearwire Corporation and its consolidated subsidiary Clearwire Communications LLC (together "Clearwire") that it did not previously own (Clearwire Acquisition) in an all cash transaction for approximately $3.5 billion , net of cash acquired of $198 million , which provided us with control of 2.5 gigahertz (GHz) spectrum and tower resources.

On July 10, 2013, SoftBank Corp., which subsequently changed its name to SoftBank Group Corp., and certain of its wholly-owned subsidiaries (together, "SoftBank") completed the merger (SoftBank Merger) with Sprint Nextel as contemplated by the Agreement and Plan of Merger, dated as of October 15, 2012 (as amended, the Merger Agreement) and the Bond Purchase Agreement, dated as of October 15, 2012 (as amended, the Bond Agreement). As a result of the SoftBank Merger, Starburst II, Inc. (Starburst II) became the parent company of Sprint Nextel. Immediately thereafter, Starburst II changed its name to Sprint Corporation and Sprint Nextel changed its name to Sprint Communications, Inc. (Sprint Communications). As a result of the completion of the SoftBank Merger in which SoftBank acquired an approximate 78% interest in Sprint Corporation, and subsequent open market stock purchases, SoftBank owned approximately 83% of the outstanding common stock of Sprint Corporation as of March 31, 2016 .

Successor and Predecessor Periods and Reporting Obligations

In connection with the close of the SoftBank Merger (as described above), Sprint Corporation became the successor registrant to Sprint Nextel under Rule 12g-3 of the Securities Exchange Act of 1934 (Exchange Act) and is the entity subject to the reporting requirements of the Exchange Act for filings with the Securities and Exchange Commission (SEC) subsequent to the close of the SoftBank Merger. The financial information herein distinguishes between the predecessor period (Predecessor) relating to Sprint Communications for periods prior to the SoftBank Merger and the successor period (Successor) relating to Sprint Corporation, formerly known as Starburst II, for periods subsequent to the incorporation of Starburst II on October 5, 2012. In addition, in order to align with SoftBank's reporting schedule, we changed our fiscal year end from December 31 to March 31, effective March 31, 2014. References herein to any fiscal year refer to the twelve-month period ending March 31 unless otherwise specifically noted.

OVERVIEW

Sprint Corporation and its subsidiaries is a communications company offering a comprehensive range of wireless and wireline communications products and services that are designed to meet the needs of consumers, businesses, government subscribers and resellers. 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, inclusive of Successor and Predecessor periods, and references to "Sprint Communications" are to Sprint Communications, Inc. and its consolidated subsidiaries. We are one of the largest wireless communications companies in the United States (U.S.), as well as a provider of wireline services. Our services are provided through our ownership of extensive wireless networks, an all-digital global wireline network and a Tier 1 Internet backbone.

We offer wireless and wireline services to subscribers in all 50 states, Puerto Rico, and the U.S. Virgin Islands under the Sprint corporate brand, which includes our retail brands of Sprint ® , Boost Mobile ® , Virgin Mobile ® , and Assurance Wireless ® on our wireless networks utilizing various technologies including third generation (3G) code division multiple access (CDMA), fourth generation (4G) services utilizing Long Term Evolution (LTE). We also offered Worldwide Interoperability for Microwave Access (WiMAX) technologies until that network was shut-down on March 31, 2016. We utilize these networks to offer our wireless and wireline subscribers differentiated products and services whether through the use of a single network or a combination of these networks.


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Our Business Segments

We operate two reportable segments: Wireless and Wireline. For additional information regarding our segments, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and also refer to the Notes to the Consolidated Financial Statements.

Wireless

We offer wireless services on a postpaid and prepaid payment basis to retail subscribers and also on a wholesale basis, which includes the sale of wireless services that utilize the Sprint network but are sold under the wholesaler's brand.

Postpaid

In our postpaid portfolio, we offer several price plans for both consumer and business subscribers. Many of our price plans include unlimited talk, text and data or allow subscribers to purchase monthly data allowances. We also offer family plans that include multiple lines of service under one account. We offer these plans with subsidy, installment billing or leasing programs. The subsidy program requires a service contract and allows for a subscriber to either bring their handset or purchase one at a discount for a new line of service. Our installment billing program does not require a service contract and offers service plans at lower monthly rates compared to subsidy plans, but requires the subscriber to pay full or near full price for the handset over monthly installments. Our leasing program also does not require a service contract, provides for service plans at lower monthly rates compared to subsidy plans and allows qualified subscribers to lease a device and make payments for use of the device over the term of the lease. At the end of the lease term, the subscriber can either turn in the device, continue leasing the device or purchase the device. See "Item 1A. Risk Factors-Subscribers who purchase a device on an installment billing basis are no longer required to sign a fixed-term service contract, which could result in higher churn, and higher bad debt expense" and "-Because we lease devices to subscribers, our device leasing program exposes us to new risks, including those related to the actual residual value realized on returned devices, higher churn and increased losses on devices ."

Prepaid

Our prepaid portfolio currently includes multiple brands, each designed to appeal to specific subscriber uses and demographics. Sprint prepaid primarily serves subscribers who want plans that are affordable, simple and flexible without a long-term commitment. Boost Mobile primarily serves subscribers with plans that offer unlimited text and talk with step pricing based on their preferred data usage. Virgin Mobile primarily serves subscribers through plans that offer control, flexibility and connectivity through various plan options. Virgin Mobile is also designated as a Lifeline-only Eligible Telecommunications Carrier in certain states and provides service for the Lifeline program under our Assurance Wireless brand. Assurance Wireless provides eligible subscribers, in certain states, who meet income requirements or are receiving government assistance, with a free wireless phone, 350 free local and long-distance voice minutes each month and unlimited free texts under the Lifeline Program. The Lifeline Program requires applicants to meet certain eligibility requirements and existing subscribers must recertify as to those requirements annually.

Wholesale

We have focused our wholesale business on enabling our diverse network of customers to successfully grow their business by providing them with an array of network, product and device solutions. This allows our customers to customize this full suite of value-added solutions to meet the growing demands of their businesses. As part of these growing demands, some of our wholesale mobile virtual network operators (MVNO) are also selling prepaid services under the Lifeline program.

We continue to support the open development of applications, content, and devices on the Sprint platform. In addition, we enable a variety of business and consumer third-party relationships through our portfolio of machine-to-machine solutions, which we offer on a retail postpaid and wholesale basis. Our machine-to-machine solutions portfolio provides a secure, real-time and reliable wireless two-way data connection across a broad range of connected devices.

Services and Products

Data & Voice Services

Wireless data communications services are provided throughout the U.S. and include mobile productivity applications, such as Internet access, messaging and email services; wireless photo and video offerings; location-based capabilities, including asset and fleet management, dispatch services and navigation tools; and mobile entertainment applications, including the ability to listen to satellite radio, download and listen to music, and play games. Wireless voice communications services provided throughout the U.S. include basic local and long-distance wireless voice services, as well as voicemail, call waiting, three-way calling, caller identification, directory assistance and call forwarding. We also provide voice


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and data services in numerous countries outside of the U.S. through roaming arrangements. We offer customized design, development, implementation and support for wireless services provided to large companies and government agencies.

Products

Our services are provided using a broad array of devices and applications and services that run on these devices to meet the growing needs of subscriber mobility. Our device portfolio includes many cutting edge handsets from various original equipment manufacturers as well as hotspots, which allow the connection of multiple WiFi enabled devices to the Sprint platform and embedded tablets and laptop devices. We have historically sold devices at prices below our cost in response to competition to attract new subscribers and as retention inducements for existing subscribers. Subscribers also have the option to purchase eligible devices through our installment billing program, or to lease eligible devices through our leasing program. In addition, we sell accessories, such as carrying cases, hands-free devices and other items to subscribers, and we sell devices and accessories to agents and other third-party distributors for resale.

Wireless Network Technologies

We deliver wireless services to subscribers primarily through our Sprint platform network. Our Sprint platform uses primarily 3G CDMA and 4G LTE wireless technologies. We served customers utilizing WiMAX technology until the network was shutdown on March 31, 2016. Our 3G CDMA wireless technology uses a digital spread-spectrum technique that allows a large number of users to access the band by assigning a code to all voice and data bits, sending a scrambled transmission of the encoded bits over the air and reassembling the voice and data into its original format. Our 4G LTE wireless data communications technology utilizes an all-internet protocol (IP) network to deliver high-speed data communications. We provide nationwide service through a combination of operating our own network in both major and smaller U.S. metropolitan areas and rural connecting routes, affiliations under commercial arrangements with third-party affiliates and roaming on other providers' networks.

Sales, Marketing and Customer Care

We focus the marketing and sales of wireless services on targeted groups of retail subscribers: individual consumers, businesses and government.

We use a variety of sales channels to attract new subscribers of wireless services, including:

direct sales representatives whose efforts are focused on marketing and selling wireless services primarily to mid-sized to large businesses and government agencies;

retail outlets, owned and operated by us, that focus on sales to the small business and consumer markets;

co-branded Sprint-RadioShack retail stores-within-a-store exclusively selling or leasing Sprint devices and the associated postpaid and prepaid service plans;

indirect sales agents and third-party retailers that primarily consist of local and national non-affiliated dealers and independent contractors that market and sell services to businesses and the consumer market, and are generally paid through commissions; and

subscriber-convenient channels, including Internet sales and telesales.

We market our postpaid services under the Sprint brand. We market our prepaid services under the Sprint, Boost Mobile, Virgin Mobile, and Assurance Wireless brands as a means to provide value-driven prepaid service plans to particular markets. Our wholesale customers are resellers of our wireless services rather than end-use subscribers and market their products and services using their own brands.

Although we market our services using traditional print, digital and television advertising, we also provide exposure to our brand names and wireless services through various sponsorships. The goal of these marketing initiatives is to increase brand awareness and sales.

Our customer care organization works to improve our subscribers' experience, with the goal of retaining subscribers of our wireless services and growing their long-term relationships with Sprint. Customer service call centers receive and resolve inquiries from subscribers and proactively address subscriber needs.

Competition

We believe that the market for wireless services has been and will continue to be characterized by competition on the basis of price, the types of services and devices offered and quality of service. We compete with a number of wireless carriers, including three other national wireless companies: AT&T, Verizon Wireless and T-Mobile. Our prepaid services compete with a number of carriers and resellers, which offers competitively-priced calling plans that include unlimited local


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calling. AT&T, T-Mobile and Verizon Wireless offer competitive prepaid services and wholesale services to resellers. Competition may intensify as a result of mergers and acquisitions, as new firms enter the market, and as a result of the introduction of other technologies, the availability of additional commercial spectrum bands, such as the 600 megahertz (MHz) band, the AWS-3 band and the AWS-4 band, and the potential introduction of new services using unlicensed spectrum. Wholesale services and products also contribute to increased competition. In some instances, resellers that use our network and offer similar services compete against our offerings. The wireless industry also faces competition from other communications and technology companies seeking to increase their brand recognition and capture customer revenue with respect to the provision of wireless products and services, in addition to non-traditional offerings in mobile data. For example, Microsoft, Google, Apple and others are offering alternative means for making wireless voice calls that, in certain cases, can be used in lieu of the wireless provider's voice service, as well as alternative means of accessing video content.

Most markets in which we operate have high rates of penetration for wireless services, thereby limiting the growth of subscribers of wireless services. As the wireless market has matured, it has become increasingly important to retain existing subscribers in addition to attracting new subscribers, particularly in less saturated growth markets such as those with non-traditional data demands. Wireless carriers also try to appeal to subscribers by offering certain devices at prices lower than their acquisition cost, which we refer to as our traditional subsidy program. We may offer higher cost devices at greater discounts than our competitors, with the expectation that the loss incurred on the cost of the device will be offset by future service revenue. Wireless carriers now also offer plans that allow subscribers to purchase or lease a device at or near full retail price in exchange for lower monthly service fees, early upgrade options, or both. AT&T, Verizon Wireless and T-Mobile also offer programs that include an option to purchase a device using an installment billing program. Our installment billing and device leasing programs do not require a service contract, provide for service plans at lower monthly rates compared to the traditional subsidy program and allow qualified subscribers to either purchase a device by paying monthly installments generally over 24 months or lease a device and make payments for the device over the term of the lease. 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. See "Item 1A. Risk Factors-If we are not able to retain and attract profitable wireless subscribers, our financial performance will be impaired" and "-Because we lease devices to subscribers, our device leasing program exposes us to new risks including those related to the actual residual value realized on returned devices, higher churn and increased losses on devices " and "-Subscribers who purchase a device on an installment billing basis are no longer required to sign a fixed-term service contract, which could result in higher churn, and higher bad debt expense."

Wireline

We provide a broad suite of wireline voice and data communication services to other communications companies and targeted business subscribers. In addition, our Wireline segment provides voice, data and IP communication services to our Wireless segment. We provide long distance services and operate all-digital global long distance and Tier 1 IP networks.

Services and Products

Our services and products include domestic and international data communications using various protocols such as multiprotocol label switching technologies (MPLS), IP, managed network services, Voice over Internet Protocol (VoIP), Session Initiated Protocol (SIP) and traditional voice services. Our IP services can also be combined with wireless services. Such services include our Sprint Mobile Integration service, which enables a wireless handset to operate as part of a subscriber's wireline voice network, and our DataLink SM service, which uses our wireless networks to connect a subscriber location into their primarily wireline wide-area IP/MPLS data network, making it easier for businesses to adapt their network to changing business requirements. In addition to providing services to our business customers, the wireline network is carrying increasing amounts of voice and data traffic for our Wireless segment as a result of growing usage by our wireless subscribers.

We continue to assess the portfolio of services provided by our Wireline business and are focusing our efforts on IP-based data services and de-emphasizing stand-alone voice services and non-IP-based data services. We also continue to provide voice services primarily to business subscribers. Our Wireline segment markets and sells its services primarily through direct sales representatives.

Competition

Our Wireline segment competes with AT&T, Verizon Communications, CenturyLink, Level 3 Communications, Inc., other major local incumbent operating companies and cable operators, as well as a host of smaller competitors in the provision of wireline services. Over the past few years, our voice services have experienced an industry-wide trend of lower revenue from lower prices and increased competition from other wireline and wireless communications companies, as well as cable multiple system operators (MSOs) and Internet service providers.


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Some competitors are targeting the high-end data market and are offering deeply discounted rates in exchange for high-volume traffic as they attempt to utilize excess capacity in their networks. In addition, we face increasing competition from other wireless and IP-based service providers. Many carriers, including cable companies, are competing in the residential and small business markets by offering bundled packages of both voice and data services. Competition in wireline services is based on price and pricing plans, the types of services offered, customer service and communications quality, reliability and availability. Our ability to compete successfully will depend on our ability to anticipate and respond to various competitive factors affecting the industry, including new services that may be introduced, changes in consumer preferences, demographic trends, economic conditions and pricing strategies. See "Item 1A. Risk Factors-Competition, industry consolidation, and technological changes in the market for wireless services could negatively affect our operations, resulting in adverse effects on our revenues, cash flows, growth, and profitability."

Legislative and Regulatory Developments

Overview

Communications services are subject to regulation at the federal level by the Federal Communications Commission (FCC) and in certain states by public utilities commissions (PUCs). Since the SoftBank Merger, we have been subject to regulatory conditions imposed by the Committee on Foreign Investment in the United States (CFIUS) pursuant to a National Security Agreement (NSA) among SoftBank, Sprint, the Department of Justice, the Department of Homeland Security and the Department of Defense (the latter three collectively, the USG Parties). Other federal agencies, such as the Federal Trade Commission and Consumer Financial Protection Bureau, have also asserted jurisdiction over our business.

The following is a summary of the regulatory environment in which we operate and does not describe all present and proposed federal, state and local legislation and regulations affecting the communications industry. Some legislation and regulations are the subject of judicial proceedings, legislative hearings and administrative proceedings that could change the way our industry operates. We cannot predict the outcome of any of these matters or their potential impact on our business. See "Item 1A. Risk Factors-Government regulation could adversely affect our prospects and results of operations; the federal and state regulatory commissions may adopt new regulations or take other actions that could adversely affect our business prospects, future growth or results of operations."

Regulation and Wireless Operations

The FCC regulates the licensing, construction, operation, acquisition and sale of our wireless operations and wireless spectrum holdings. FCC requirements impose operating and other restrictions on our wireless operations that increase our costs. The FCC does not currently regulate rates for services offered by commercial mobile radio service (CMRS) providers, and states are legally preempted from regulating such rates and entry into any market, although states may regulate other terms and conditions. The Communications Act of 1934 (Communications Act) and FCC rules also require the FCC's prior approval of the assignment or transfer of control of an FCC license, although the FCC's rules permit spectrum lease arrangements for a range of wireless radio service licenses, including our licenses, with FCC oversight. Approval from the Federal Trade Commission and the Department of Justice, as well as state or local regulatory authorities, also may be required if we sell or acquire spectrum interests. The FCC sets rules, regulations and policies to, among other things:

grant and renew licenses in the 800 MHz, 1.9 GHz and 2.5 GHz bands;

rule on assignments and transfers of control of FCC licenses, and leases covering our use of FCC licenses held by other persons and organizations;

govern the interconnection of our networks with other wireless and wireline carriers;

establish access and universal service funding provisions;

impose rules related to unauthorized use of and access to subscriber information;

impose fines and forfeitures for violations of FCC rules;

regulate the technical standards governing wireless services; and

impose other obligations that it determines to be in the public interest.

We hold 800 MHz, 1.9 GHz and 2.5 GHz FCC licenses authorizing the use of radio frequency spectrum to deploy our wireless services.


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800 MHz License Conditions

Spectrum in our 800 MHz band originally was licensed in small groups of channels, therefore, we hold thousands of these licenses, which together allow us to provide coverage across much of the continental U.S. Our 800 MHz licenses are subject to requirements that we meet population coverage benchmarks tied to the initial license grant dates. To date, we have met all of the construction requirements applicable to these licenses, except in the case of licenses that are not material to our business. Our 800 MHz licenses have ten-year terms, at the end of which each license is subject to renewal requirements that are similar to those for our 1.9 GHz licenses described below.

1.9 GHz PCS License Conditions

All PCS licenses are granted for ten-year terms. For purposes of issuing PCS licenses, the FCC utilizes major trading areas (MTAs) and basic trading areas (BTAs) with several BTAs making up each MTA. Each license is subject to build-out requirements, which we have met in all of our MTA and BTA markets.

If applicable build-out conditions are met, these licenses may be renewed for additional ten-year terms. Renewal applications are not subject to auctions. If a renewal application is challenged, the FCC grants a preference commonly referred to as a license renewal expectancy to the applicant if the applicant can demonstrate that it has provided "substantial service" during the past license term and has substantially complied with applicable FCC rules and policies and the Communications Act.

2.5 GHz License Conditions

We hold licenses for or lease spectrum located within the 2496 to 2690 MHz band, commonly referred to as the 2.5 GHz band, which is designated for Broadband Radio Services (BRS) and Educational Broadband Service (EBS). Most BRS and EBS licenses are allocated to specific, relatively small geographic service areas. Other BRS licenses provide for one of 493 separate BTAs. Under current FCC rules, the BRS and EBS band in each territory is generally divided into 33 channels consisting of a total of 186 MHz of spectrum, with an additional eight MHz of guard band spectrum, which further protects against interference from other license holders. Under current FCC rules, we can access BRS spectrum either through outright ownership of a BRS license issued by the FCC or through a leasing arrangement with a BRS license holder. The FCC rules generally limit eligibility to hold EBS licenses to accredited educational institutions and certain governmental, religious and nonprofit entities, but permit those license holders to lease up to 95% of their capacity for non-educational purposes. Therefore, we primarily access EBS spectrum through long-term leasing arrangements with EBS license holders. Our EBS spectrum leases typically have an initial term equal to the remaining term of the EBS license, with an option to renew the lease for additional terms, for a total lease term of up to 30 years. In addition, we generally have a right of first refusal for a period of time after our leases expire or otherwise terminate to match another party's offer to lease the same spectrum. Our leases are generally transferable, assuming we obtain required governmental approvals. Achieving optimal broadband network speeds, capacity and coverage using 2.5 GHz spectrum relies in significant part on operationalizing a complex mixture of BRS and EBS spectrum licenses and leases in the desired service areas, which is subject to the EBS licensing limitations described above and the technical limitations of the frequencies in the 2.5 GHz range.

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"). 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 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 March 31, 2016 . 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. 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 March 31, 2016 have exceeded $2.8 billion , not all of those costs have been reviewed and accepted as eligible by the transition administrator.

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 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


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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.

911 Services

Pursuant to FCC rules, CMRS providers, including us, are required to provide enhanced 911 (E911) services including, depending upon the capabilities of the requesting public safety answering point (PSAP), the location of the cell site from which the call is being made or the location of the subscriber's handset using latitude and longitude. CMRS providers are also now required to provide text-to-911 services upon request by a capable PSAP. The FCC recently revised the location accuracy standards for the provision of wireless 911 services indoors and these requirements may impose additional obligations.

Cybersecurity

Cybersecurity continues to receive attention at the federal, state and local levels. Congress has passed and continues to consider various forms of cybersecurity legislation to increase the security and resiliency of the nation's digital infrastructure. In addition, over the past few years the President has issued executive orders directing the Department of Homeland Security and other government agencies to take a number of steps to improve the security of the nation's critical infrastructure. Additionally, the Communications Security, Reliability and Interoperability Council approved Cybersecurity Risk Management and Best Practices, a report providing the communication industry guidance in using the National Institute of Standards and Technology Cybersecurity Framework. Implementation of these guidelines or the adoption of further cybersecurity laws or regulation may impose additional costs on Sprint. See "Item 1A. Risk Factors- Our reputation and business may be harmed and we may be subject to legal claims if there is a loss, disclosure, misappropriation of, unauthorized access to, or other security breach of our proprietary or sensitive information ."

National Security Agreement

As a precondition to CFIUS approval of the SoftBank Merger, the USG Parties required that SoftBank and Sprint enter into the NSA, under which SoftBank and Sprint have agreed to implement certain measures to protect national security, certain of which may materially and adversely affect our operating results due to the increased cost of compliance with security measures, and limits over our control of certain U.S. facilities, contracts, personnel, vendor selection and operations. If we fail to comply with our obligations under the NSA our ability to operate our business may be adversely affected. See "Item 1A. Risk Factors-Regulatory authorities have imposed measures to protect national security and classified projects as well as other conditions that could have an adverse effect on Sprint."

State and Local Regulation

While the Communications Act generally preempts state and local governments from regulating entry of, or the rates charged by, wireless carriers, certain state PUCs and local governments regulate customer billing, termination of service arrangements, advertising, certification of operation, use of handsets when driving, service quality, sales practices, management of customer call records and protected information and many other areas. Also, some state attorneys general have become more active in bringing lawsuits related to the sales practices and services of wireless carriers. Varying practices among the states may make it more difficult for us to implement national sales and marketing programs. States also may impose their own universal service support requirements on wireless and other communications carriers, similar to the contribution requirements that have been established by the FCC, and some states are requiring wireless carriers to help fund additional programs, including the implementation of E911 and the provision of intrastate relay services for consumers who are hearing impaired. We anticipate that these trends will continue to require us to devote legal and other resources to work with the states to respond to their concerns while attempting to minimize any new regulation and enforcement actions that could increase our costs of doing business.

Regulation and Wireline Operations

Competitive Local Service

The Telecommunications Act of 1996 (Telecom Act), which was the first comprehensive update of the Communications Act, was designed to promote competition, and it eliminated legal and regulatory barriers for entry into local and long distance communications markets. It also required incumbent local exchange carriers (ILECs) to allow resale of specified local services at wholesale rates, negotiate interconnection agreements, provide nondiscriminatory access to certain unbundled network elements and allow co-location of interconnection equipment by competitors. The rules implementing the Telecom Act continue to be interpreted by the courts, state PUCs and the FCC , and Congress is considering possible changes


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to the Telecom Act. Further restrictions on the pro-competitive aspects of the Telecom Act could adversely affect Sprint's operations.

International Regulation

The wireline services we provide outside the U.S. are subject to the regulatory jurisdiction of foreign governments and international bodies. In general, we are required to obtain licenses to provide wireline services and comply with certain government requirements.

Other Regulations

Network Neutrality

On February 26, 2015, the FCC issued an order reclassifying broadband Internet access service as a telecommunications service subject to Title II of the Communications Act and promulgated new net neutrality rules applicable to both mobile and fixed service providers. The rules prohibit: (1) blocking of lawful content, applications, services and non-harmful devices; (2) impairing or degrading Internet traffic on the basis of content, application, or service, or use of a non-harmful device; and (3) prioritization or favoring of some network traffic over other traffic either in exchange for consideration (monetary or otherwise) from a third party, or to benefit an affiliated entity. All of these prohibitions are subject to a "reasonable network management" exception. The rules also include a "transparency" rule that requires us to disclose information about our commercial terms, performance characteristics, and network practices. In addition, the order established a future conduct rule, to be applied on a case by case basis, prohibiting broadband Internet access providers from unreasonably interfering with or disadvantaging end users' ability to use the Internet to access lawful content, applications, service, or devices of their choice, or edge providers' ability to make such content applications, services, or devices available to end users. Depending upon the interpretation and application of these rules, we may incur additional costs or be limited in the services we can provide.

Truth in Billing and Consumer Protection

The FCC's Truth in Billing rules require both wireline and wireless telecommunications carriers, such as us, to provide full and fair disclosure of all charges on their bills, including brief, clear, and non-misleading plain language descriptions of the services provided. The FCC has opened several proceedings to address issues of consumer protection, including the use of early termination fees, "bill shock" ( i.e. , overage charges for voice, data and text usage) and has proposed new rules to address cramming. The wireless industry has proactively addressed many of these consumer issues by adopting industry best practices, such as the addition of free notifications regarding voice, data, messaging and international roaming usage. If these FCC proceedings or individual state proceedings create changes in the Truth in Billing rules, our billing and customer service costs could increase.

Access Charges

ILECs and competitive local exchange carriers (CLECs) impose access charges for the origination and termination of calls upon wireless and long distance carriers, including our Wireless and Wireline segments. In addition, ILECs and CLECs charge other carriers special access charges for access to dedicated facilities that are paid by both our Wireless and Wireline segments. These fees and charges are a significant cost for our Wireless and Wireline segments and continue to be the subject of interpretation and litigation.

The FCC also has initiated a proceeding to consider whether special access pricing rules need to be changed, and whether the terms and conditions governing the provision of special access are just and reasonable. As a part of that proceeding, the FCC initiated a mandatory data collection effort, which was completed in early 2015. In May of 2016, the FCC released an Order and Further Notice of Proposed Rule Making which would create a new regulatory framework governing the rates, terms and conditions for the provision of TDM and Ethernet services in non-competitive markets.  These changes could reduce Sprint's costs of providing service in some areas. The FCC is expected to complete this rule making in 2016.

Universal Service

Communications carriers contribute to and receive support from various Universal Service Funds (USF) established by the FCC and many states. The federal USF program funds services provided in high-cost areas, reduced-rate services to low-income consumers, and discounted communications and Internet services for schools, libraries and rural health care facilities. Similarly, many states have established their own USFs to which we contribute. The FCC has considered changing its USF contribution methodology, which could impact the amount of our assessments.


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The Lifeline program is included within the USFs. Virgin Mobile was designated as a Lifeline-only Eligible Telecom Carrier (ETC) in 42 jurisdictions as of March 31, 2016 , and provides service under our Assurance Wireless brand. As a Lifeline provider, Assurance Wireless receives support from the USF. Changes in the Lifeline program , including adoption of minimum service standards and the phase-out of Lifeline support for standalone voice service, and enforcement actions by the FCC and other regulatory/legislative bodies could negatively impact growth in the Assurance Wireless and wholesale subscriber base and/or the profitability of the Assurance Wireless and wholesale business over all. The decline in standalone voice support, which is expected to begin in December 2019 and will decline annually for all existing subscribers through December 2021, may be offset by the expansion of the Lifeline program to include support for broadband service.

Electronic Surveillance Obligations

The Communications Assistance for Law Enforcement Act (CALEA) requires telecommunications carriers, including us, to modify equipment, facilities and services to allow for authorized electronic surveillance based on either industry or FCC standards. Our CALEA obligations have been extended to data and VoIP networks, and we are in compliance with these requirements. Certain laws and regulations require that we assist various government agencies with electronic surveillance of communications and provide records concerning those communications. We do not disclose customer information to the government or assist government agencies in electronic surveillance unless we have been provided a lawful request for such information. If our obligations under these laws and regulations were to change or were to become the focus of any inquiry or investigation, it could require us to incur additional costs and expenses, which could adversely affect our financial condition or results of operation.

Environmental Compliance

Our environmental compliance and remediation obligations relate primarily to the operation of standby power generators, batteries and fuel storage for our telecommunications equipment. These obligations require compliance with storage and related standards, obtaining of permits and occasional remediation. Although we cannot assess with certainty the impact of any future compliance and remediation obligations, we do not believe that any such expenditures will adversely affect our financial condition or results of operations.

Patents, Trademarks and Licenses

We own numerous patents, patent applications, service marks, trademarks and other intellectual property in the U.S. and other countries, including "Sprint ® ," "Boost Mobile ® ," and "Assurance Wireless ® ." Our services often use the intellectual property of others, such as licensed software, and we often license copyrights, patents and trademarks of others, like "Virgin Mobile." In total, these licenses and our copyrights, patents, trademarks and service marks are of material importance to our business. Generally, our trademarks and service marks endure and are enforceable so long as they continue to be used. Our patents and licensed patents have remaining terms of up to 10 years. We occasionally license our intellectual property to others, including licenses to others to use the "Sprint" trademark.

We have received claims in the past, and may in the future receive claims, that we, or third parties from whom we license or purchase goods or services, have infringed on the intellectual property of others. These claims can be time-consuming and costly to defend, and divert management resources. If these claims are successful, we could be forced to pay significant damages or stop selling certain products or services or stop using certain trademarks. We, or third parties from whom we license or purchase goods or services, also could enter into licenses with unfavorable terms, including royalty payments, which could adversely affect our business.

Access to Public Filings and Board Committee Charters

Important information is routinely posted on our website at www.sprint.com . Public access is provided to our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed with or furnished to the SEC under the Exchange Act. These documents may be accessed free of charge on our website at the following address: http://www.sprint.com/investors . These documents are available as soon as reasonably practicable after filing with the SEC and may also be found at the SEC's website at www.sec.gov . Information contained on or accessible through our website or the SEC's website is not part of this annual report on Form 10-K.

Our Code of Ethics, the Sprint Code of Conduct (Code of Conduct), our Corporate Governance Guidelines and the charters of the following committees of our board of directors: the Audit Committee, the Compensation Committee, the Finance Committee, and the Nominating and Corporate Governance Committee may be accessed free of charge on our website at the following address: www.sprint.com/governance . Copies of any of these documents can be obtained free of charge by writing to: Sprint Shareholder Relations, 6200 Sprint Parkway, Mailstop KSOPHF0302-3B424, Overland Park, Kansas 66251 or by email at shareholder.relations@sprint.com . If a provision of the Code of Conduct required under the NYSE corporate governance standards is materially modified, or if a waiver of the Code of Conduct is granted to a director or executive officer,


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a notice of such action will be posted on our website at the following address: www.sprint.com/governance . Only the Audit Committee may consider a waiver of the Code of Conduct for an executive officer or director.

Employee Relations

As of March 31, 2016 , we had approximately 30,000 employees.

Executive Officers of the Registrant

The following people are serving as our executive officers as of May 17, 2016 . These executive officers were elected to serve until their successors have been elected. There is no familial relationship between any of our executive officers and directors.

Name

Business Experience

Current

Position

Held

Since

Age

Marcelo Claure

President and Chief Executive Officer. Mr. Claure was named President and CEO, effective August 11, 2014, and has served on the Sprint board of directors since January 2014. Prior to this, he was CEO of Brightstar, a company he founded in 1997 and grew from a small Miami-based distributor of mobile devices into a global business with more than $10 billion in gross revenue for the year ended 2013. Mr. Claure serves as vice chairman of the board of directors of CTIA-The Wireless Association. He also is a member of the board of directors of My Brother's Keeper Alliance.

2014

45

Tarek Robbiati

Chief Financial Officer. Mr. Robbiati was appointed Chief Financial Officer in August 2015. From January 2013 until August 2015, Mr. Robbiati served as Chief Executive Officer and Managing Director of FlexiGroup Limited in Australia, where he oversaw all segments of the company and reported to the board of directors. From December 2009 until December 2012, Mr. Robbiati was Group Managing Director and Regional President of Telstra International Group, where he oversaw operating and financial aspects of the telecommunications company. From December 2009 until December 2012, Mr. Robbiati was Executive Chairman of Hong Kong CSL Limited ("CSL"), and from July 2007 until May 2010, Mr. Robbiati served as the Chief Executive Officer of CSL, during which time he spearheaded and implemented transformation strategies and strengthened CSL's position as a Market Leader in Hong Kong.

2015

50

Guenther Ottendorfer

Chief Operating Officer, Technology. Mr. Ottendorfer was appointed Chief Operating Officer, Technology in August 2015. He is responsible for overseeing Sprint's network, technology and IT organizations, including related strategy, network operations and performance, as well as partnerships with network, technology and IT vendors. From September 2013 until April 2015, he served as Group CTO at Telekom Austria Group, where he was responsible for driving major wireless expansion, convergence and network function virtualization projects across the countries of the group. From January 2011 until July 2013 Mr. Ottendorfer served as Managing Director - Networks at Optus Singtel, Australia's second largest telecommunications provider with over 11 million customers in cable, fixed, mobile and satellite networks, where he was responsible for the day-to-day running of all Optus networks.

2015

47

Robert Hackl

Chief Experience Officer and President of National Sales. Dr. Hackl was appointed Chief Experience Officer and President of National Sales in March 2016. Dr. Hackl is responsible for Customer Care, Omni-Channel Operations, and the management and measurement of the Sprint Promoter Score and is also responsible for direct and indirect sales, as well as telesales. From August 2013 until March 2016, he served as Director of Customer Operations at Vodafone GmbH, where he established service and customer experience leadership while reducing costs yearly. From October 2010 to May 2013, he served as Senior Vice President of Channel Management at TMobile USA, where he established its channel management function and oversaw customer channel initiatives. From 1996 to 2010, he worked as a consultant for McKinsey & Company.

2016

46


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Name

Business Experience

Current

Position

Held

Since

Age

John Saw Ph.D.

Chief Technology Officer. Dr. Saw was appointed as Chief Technology Officer in August 2015. Previously he was Chief Network Officer and Senior Vice President, Technology Architecture. Dr. Saw is responsible for network engineering, deployment and operations. Prior to this, he was Senior Vice President, Technology Architecture. Before Sprint's acquisition of Clearwire, Dr. Saw was Chief Technology Officer of Clearwire Corp. He joined Clearwire as its second employee in 2003 and was instrumental in scaling the company's technical expertise and organization. In 2009 and 2010, he led the Clearwire Team that built the first 4G network in North America, covering more than 130 million people.

2015

54

Roger Sole

Chief Marketing Officer. Mr. Sole was appointed Chief Marketing Officer in January 2016. From May 2015 until December 2015, Mr. Sole served as Senior Vice President of Marketing, Innovation, and Hispanic Market. From August 2011 until May 2015, Mr. Sole served as the Chief Marketing Officer of TIM Brasil. Under his leadership, TIM Brasil, Telecom Italia's mobile carrier in Brazil, emerged as that country's fastest growing mobile operator by introducing new offers and services and providing innovative ways for customers to get new smartphones. Mr. Sole helped grow TIM Brasil to become the top seller of smartphones in Brazil with a 40% market share and nearly 75 million customers.

2016

42

Dow Draper

President - Global Wholesale and Prepaid Services. Mr. Draper was appointed President - Global Wholesale and Prepaid Services in September 2013. Mr. Draper manages the sales and marketing for Sprint's prepaid brands, Virgin Mobile USA, Boost Mobile and Assurance Wireless as well as Sprint's overall Wholesale business. Previously, he was Senior Vice President and General Manager of Retail for CLEAR, the retail brand of Clearwire, where he oversaw the brand's sales, marketing, customer care and product development. He served in various executive positions at Clearwire since 2009. Before joining Clearwire, Mr. Draper held various roles at Alltel Wireless, including senior vice president of Voice & Data Solutions and senior vice president of Financial Planning and Analysis. He has also held various roles at Western Wireless and McKinsey & Company.

2013

46

Jaime Jones

President, South Area. Mr. Jones was appointed President, South Area in November 2015 and covers 10 Southern states and Central Texas. Based in Atlanta, Mr. Jones is responsible for sales strategy and execution, network oversight, customer service, marketing communications and general operations. Previously, Mr. Jones was appointed as President, Postpaid and General Business in August 2014. Before being named to this role, Mr. Jones was responsible for the consumer sales strategy, distribution and customer experience for Sprint's Postpaid and Prepaid product brands. Mr. Jones has also served Sprint as senior vice president for the General Business and Public Sector organizations, as well as numerous vice president roles at the area, regional and national levels for Local, Emerging and Mid-Markets and General Business units. Mr. Jones has more than 30 years of experience with technology companies, including management and operations roles for Siemens Communications Inc. (formerly IBM, ROLM Systems Division) and Harris/3MCentral Penn Office Products Inc. (formerly 3M Copying Products Division).

2015

55

Jorge Gracia

Senior Vice President, General Counsel and Chief Ethics Officer. Mr. Gracia was appointed to his position in January 2016. He oversees all strategic, transactional, dispute, and preventative legal and government affairs matters, provides advice to the board and senior management on various matters, and has responsibility for ethics training and legal compliance. Mr. Gracia has over 25 years of experience in international corporate law, most recently with Samsung Electronics America, Inc., where he served as Senior Vice President and General Counsel from October 2013 until December 2015. Mr. Gracia previously spent 17 years at Alcatel-Lucent, where he held a series of positions, each with increasing responsibility. Mr. Gracia last served as Deputy General Counsel - Global Commercial Law, a role in which he led an international team of approximately 200 professionals supporting all commercial matters, including serving as general counsel for global sales and marketing, the team responsible for worldwide revenue-generating activities.

2016

50


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Name

Business Experience

Current

Position

Held

Since

Age

Paul Schieber, Jr.

Controller. Mr. Schieber was appointed as Controller in December 2013. Mr. Schieber previously served in various positions at Sprint since 1991. Most recently, he served as Vice President, Access and Roaming Planning, where he was responsible for managing Sprint's roaming costs as well as its wireless and wireline access costs. Prior to that, Mr. Schieber held various leadership roles in Sprint's Finance organization including heading Sprint's internal audit function as well as serving in various Vice President - Finance roles. He was also a director in Sprint's Tax department and a director on its Mergers and Acquisitions team. Before joining Sprint, Mr. Schieber was a senior manager with the public accounting firm Ernst & Young, where he worked as an auditor and a tax consultant. In addition, he served as corporate controller for a small publicly held company.

2013

58



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Item 1A.

Risk Factors

In addition to the other information contained in this annual report on Form 10-K, the following risk factors should be considered carefully in evaluating us. Our business, financial condition, liquidity or results of operations could be materially adversely affected by any of these risks.

If we are not able to retain and attract profitable wireless subscribers, our financial performance will be impaired.

Our success is based on our ability to retain current subscribers and attract new subscribers. If we are unable to attract and retain profitable wireless subscribers, our financial performance will be impaired, and we could fail to meet our financial obligations. From 2008 through March 31, 2016 , we have experienced an aggregate net decrease of approximately 11.8 million subscribers in our total retail postpaid subscriber base (excluding the impact of our acquisitions).

Our ability to retain our existing subscribers, to compete successfully for new subscribers, and reduce our churn rate depends on, among other things:

our ability to anticipate and respond to various competitive factors, including our successful execution of marketing and sales strategies; the acceptance of our value proposition; service delivery and customer care activities, including new account set up and billing; and execution under credit and collection policies;

actual or perceived quality and coverage of our network;

public perception about our brands;

our ability to anticipate, develop, and deploy new or enhanced technologies, products, and services that are attractive to existing or potential subscribers;

our ability to continue to access spectrum and acquire additional spectrum capacity; and

our ability to maintain our current mobile virtual network operator (MVNO) relationships and to enter into new MVNO arrangements .

Our ability to retain subscribers may be negatively affected by industry trends related to subscriber contracts. Recently, we have seen aggressive customer acquisition efforts by our competitors. For example, most service providers are offering wireless service plans without any long-term commitment. Furthermore, some service providers are reimbursing contract termination fees, including paying off the outstanding balance on devices, incurred by new customers in connection with such customers terminating service with their current wireless service providers. Our competitors' aggressive customer contract terms, such as those described above, could negatively affect our ability to retain subscribers and could lead to an increase in our churn rates if we are not successful in providing an attractive product, price, and service mix.

We expect to continue to incur expenses such as the reimbursement of subscriber termination fees, and other subscriber acquisition and retention expenses, to attract and retain subscribers, but there can be no assurance that our efforts will generate new subscribers or result in a lower churn rate. Subscriber losses and a high churn rate could adversely affect our business, financial condition, and results of operations because they result in lost revenues and cash flow.

Moreover, we and our competitors continue to seek a greater proportion of new subscribers from each other's existing subscriber bases rather than from first-time purchasers. To the extent we cannot compete effectively for new subscribers or if we attract more subscribers that are not creditworthy, our revenues and results of operations could be adversely affected.

The success of our network improvements will depend on the timing, extent, and cost of implementation; access to spectrum; the performance of third-parties and related parties; upgrade requirements; and the availability and reliability of the various technologies required to provide such modernization.

We must continually invest in our wireless network, including expanding our network capacity and coverage through macro sites and small cells, in order to improve our wireless services and remain competitive. The development and deployment of new technologies and services requires us to anticipate the changing demands of our customers and to respond accordingly, which we may not be able to do in a timely or efficient manner.

Improvements in our service depend on many factors, including our ability to predict and adapt to future changes in technologies, changes in consumer demands, changes in pricing and service offerings by our competitors, and continued access to and deployment of adequate spectrum, including any leased spectrum. If we are unable to access spectrum to increase capacity or to deploy the services subscribers desire on a timely basis or at acceptable costs while maintaining network quality levels, our ability to attract and retain subscribers could be adversely affected, which would negatively impact our operating results.


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If we fail to provide a competitive network, our ability to provide wireless services to our subscribers, to attract and retain subscribers, and to maintain and grow our subscriber revenues could be adversely affected. For example, achieving optimal broadband network speeds, capacity, and coverage using 2.5 GHz spectrum relies in significant part on operationalizing a complex mixture of BRS and EBS spectrum licenses and leases in the desired service areas. The EBS is subject to licensing limitations and the technical limitations of the frequencies in the 2.5 GHz range. See "Item 1. Business-Legislative and Regulatory Developments-Regulation and Wireless Operations-2.5 GHz License Conditions." If we are unable to operationalize this mixture of licenses and leases, our targeted network modernization goals could be affected.

Using new and sophisticated technologies on a very large scale entails risks. For example, deployment of new technologies from time to time has adversely affected, and in the future may adversely affect, the performance of existing services on our network and result in increased churn or failure to attract wireless subscribers. Should implementation of our modernized network, which also includes expanding our network through densification using both macro sites and small cells, be delayed or costs exceed expected amounts, our margins could be adversely affected and such effects could be material. Should the delivery of services expected to be deployed on our modernized network be delayed due to technological constraints or changes, performance of third-party suppliers, regulatory restrictions, including zoning and leasing restrictions, or permit issues, subscriber dissatisfaction, or other reasons, the cost of providing such services could become higher than expected, ultimately increasing our cost to subscribers and resulting in decreases in net subscribers, which would adversely affect our revenues, profitability, and cash flow from operations.

Our high debt levels and restrictive debt covenants could negatively impact our ability to access future financing at attractive rates or at all, which could limit our operating flexibility and ability to repay our outstanding debt as it matures.

As of March 31, 2016 , our consolidated principal amount of indebtedness was $33.4 billion, and we had $3.0 billion of undrawn borrowing capacity under the revolving bank credit facility. Our high debt levels and debt service requirements are significant in relation to our revenues and cash flow, which may reduce our ability to respond to competition and economic trends in our industry or in the economy generally. Our high debt levels and debt service requirements may also limit our financing options as a result of the restrictions placed on certain of our assets in our recent financing transactions. In addition, certain agreements governing our indebtedness impose operating restrictions on us, subject to exceptions, including our ability to:

pay dividends;

create liens on our assets;

receive dividend or other payments from certain of our subsidiaries;

enter into transactions with affiliates; and

engage in certain asset sale or business combination transactions.

Our revolving bank credit facility and other financing facilities also require that we maintain certain financial ratios, including a leverage ratio, which could limit our ability to incur additional debt. Our failure to comply with our debt covenants would trigger defaults under those obligations, which could result in the maturities of those debt obligations being accelerated and could in turn result in cross defaults with other debt obligations. If we are forced to refinance our debt obligations prior to maturity on terms that are less favorable or if we were to experience difficulty in refinancing the debt prior to maturity, our results of operations or financial condition could be materially harmed. In addition, our recent asset-based financings, which we expect to continue to rely on in the future as a source of funds, could subject us to an increased risk of loss of assets secured under those facilities. Limitations on our ability to obtain suitable financing when needed, or at all, or a failure to execute on our cost-reduction initiatives, could result in an inability to continue to expand our business, timely execute network modernization plans, and meet competitive challenges.

Subscribers who purchase a device on an installment billing basis are no longer required to sign a fixed-term service contract, which could result in higher churn, and higher bad debt expense.

Our service plans allow certain subscribers to purchase an eligible device under an installment contract payable over a period of up to 24 months. Subscribers who take advantage of these plans are no longer required to sign a fixed-term service contract to obtain postpaid service; rather, their service is provided on a month to month contract basis with no early termination fee. These service plans may not meet our subscribers' or potential subscribers' needs, expectations, or demands. In addition, subscribers on these plans can discontinue their service at any time without penalty, other than the obligation of any residual commitment they may have for unpaid service or for amounts due under the installment contract for the device. We could experience a higher churn rate than we expect due to the ability of subscribers to more easily change service providers, which could adversely affect our results of operations. Our operational and financial performance may be


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adversely affected if we are unable to grow our customer base and achieve the customer penetration levels that we anticipate with this business model.

Subscribers who have financed their devices through these plans have the option to pay for their devices in installments over a period of up to 24 months. This program subjects us to increased risks relating to consumer credit issues, which could result in increased costs, including increases to our bad debt expense and write-offs of installment billing receivables. These arrangements may be particularly sensitive to changes in general economic conditions, and any declines in the credit quality of our subscriber base could have a material adverse effect on our financial position and results of operations.

Because we lease devices to subscribers, our device leasing program exposes us to new risks, including those related to the actual residual value realized on returned devices, higher churn and increased losses on devices.

We also lease devices to certain of our subscribers. Our financial condition and results of operations depend, in part, on our ability to appropriately assess the credit risk of our lease subscribers and the ability of our lease subscribers to perform under our device leases. In addition to monthly lease payments, we expect to realize economic benefit from the estimated residual value of a leased device, which is the estimated value of a leased device at the time of the expiration of the lease term. Changes in residual value assumptions made at lease inception would affect the amount of depreciation expense and the net amount of equipment under operating leases. If estimated residual values, in the aggregate, significantly decline due to economic factors, obsolescence, or other circumstances, we may not realize such residual value, which could have a material adverse effect on our financial position and results of operations. We may also suffer negative consequences including increased costs and increased losses on devices as a result of a lease subscriber default , the related termination of a lease, and the attempted repossession of the device, including failure of a lease subscriber to return a leased device at the end of the lease. Sustained failure of subscribers to return leased devices could also negatively impact our ability to obtain financing based on leased devices in the future. In addition, subscribers who lease a device are no longer required to sign a fixed-term service contract, which could result in higher churn, and increased losses on devices.

Adverse economic conditions may negatively impact our business and financial performance, as well as our access to financing on acceptable terms or at all.

Our business and financial performance are sensitive to changes in macro-economic conditions, including changes in interest rates, consumer credit conditions, consumer debt levels, consumer confidence, inflation rates (or concerns about deflation), unemployment rates, energy costs, and other factors. Concerns about these and other factors may contribute to market volatility and economic uncertainty.

Market turbulence and weak economic conditions may materially adversely affect our business and financial performance in a number of ways. Our services are available to a broad customer base, a significant portion of which may be more vulnerable to weak economic conditions. We may have greater difficulty in gaining new subscribers within this segment and existing subscribers may be more likely to terminate service due to an inability to pay.

We will need to reduce costs and raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments and execute our business strategy. Our ability to raise additional capital will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial performance. Instability in the global financial markets has resulted in periodic volatility in the credit, equity, and fixed income markets. This volatility could limit our access to the credit markets, leading to higher borrowing costs or, in some cases, the inability to obtain financing on terms that are acceptable to us, or at all.

Weak economic conditions and credit conditions may also adversely impact various third parties on which we rely, some of which have filed for or may be considering bankruptcy, experiencing cash flow or liquidity problems, or are unable to obtain credit such that they may no longer be able to operate. Any of these could adversely impact our ability to distribute, market, or sell our products and services.

Government regulation could adversely affect our prospects and results of operations; federal and state regulatory commissions may adopt new regulations or take other actions that could adversely affect our business prospects, future growth, or results of operations.

The FCC, Federal Trade Commission, Consumer Financial Protection Bureau, and other federal, state and local, as well as international, governmental authorities assert jurisdiction over our business and could adopt regulations or take other actions that would adversely affect our business prospects or results of operations.


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The licensing, construction, operation, sale and interconnection arrangements of wireless telecommunications systems are regulated by the FCC and, depending on the jurisdiction, international, state and local regulatory agencies. In particular, the FCC imposes significant regulation on licensees of wireless spectrum with respect to how radio spectrum is used by licensees, the nature of the services that licensees may offer and how the services may be offered, and resolution of issues of interference between spectrum bands. The FCC grants wireless licenses for terms of generally ten years that are subject to renewal and revocation. There is no guarantee that our licenses will be renewed. Failure to comply with the FCC requirements applicable to a given license could result in revocation of that license and, depending on the nature of the non-compliance, other Sprint licenses.

The FCC uses its transactional "spectrum screen" to identify prospective wireless transactions that may require additional competitive scrutiny. If a proposed transaction would exceed the spectrum screen threshold, the FCC undertakes a more detailed analysis of relevant market conditions in the impacted geographic areas to determine whether the transaction would reduce competition without offsetting public benefits. The revised screen now includes substantial portions of the 2.5 GHz band previously excluded from the screen and that are licensed or leased to Sprint in numerous markets. As a result, future Sprint spectrum acquisitions may exceed the spectrum screen trigger for additional FCC review. Such additional review could extend the duration of the regulatory review process and there can be no assurance that such transactions will ultimately be completed in whole or in part.

The FCC and other federal agencies have recently engaged in increased regulatory and enforcement activity as well as investigations of the industry generally. Depending upon their interpretation, newly adopted net neutrality regulations may have unforeseen consequences for our business. Such regulations, enforcement activities, or investigations could make it more difficult and expensive to operate our business, and could increase the costs of our wireless operations. In addition, we may offer products that include highly regulated financial services, which subject us to additional state and federal regulations. The costs to comply with such regulations and failure to remain compliant with such regulations could adversely affect our results of operations.

Degradation in network performance caused by compliance with government regulation, loss of spectrum, or additional rules associated with the use of spectrum in any market could result in an inability to attract new subscribers or higher subscriber churn in that market, which could adversely affect our revenues and results of operations. Furthermore, additional costs or fees imposed by governmental regulation could adversely affect our revenues, future growth, and results of operations.

Competition, industry consolidation, and technological changes in the market for wireless services could negatively affect our operations, resulting in adverse effects on our revenues, cash flows, growth, and profitability.

We compete with a number of other wireless service providers in each of the markets in which we provide wireless services. Competition is expected to continue to increase as additional spectrum is made available for commercial wireless services, and we have experienced and expect to continue to experience an increased customer demand for data usage on our network. Competition in pricing, service, and product offerings may adversely impact subscriber retention and our ability to attract new subscribers. A decline in the average revenue per subscriber coupled with a decline in the number of subscribers would negatively impact our revenues, cash flows, and profitability. In addition, consolidation by our competitors and roaming partners could lead to fewer companies controlling access to network infrastructure, enabling our competitors to control usage and rates, which could negatively affect our revenues and profitability.

Further, some of our competitors now provide content services in addition to voice and broadband services, and consumers are increasingly accessing video content from alternative sources via Internet-based providers and applications, all of which create increased competition in this area.

The wireless communications industry continues to experience significant technological change, including improvements in the capacity, quality, and types of technology. These developments cause uncertainty about future subscriber demand for our wireless services and the prices that we will be able to charge for these services. As services, technology, and devices evolve, we also expect continued pressure on voice, text, and other service revenues. Rapid changes in technology may lead to the development of wireless communications technologies, products, or alternative services that are superior to our technologies, products, or services, or that consumers prefer over ours. In addition, technological advances have caused long distance, local, wireless, video, and Internet services to become more integrated, which has contributed to increased competition, new competitors, new products, and the expansion of services offered by our competitors in each of these markets. If we are unable to meet future advances in competing technologies on a timely basis, or at an acceptable cost, we may not be able to compete effectively and could lose subscribers to our competitors.


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The trading price of our common stock has been, and may continue to be, volatile and may not reflect our actual operations and performance.

Market and industry factors may adversely impact the market price of our common stock, regardless of our actual operations and performance. Stock price volatility and sustained decreases in our share price could subject our stockholders to losses and may adversely impact our ability to issue equity. The trading price of our common stock has been, and may continue to be, subject to fluctuations in response to various factors, some of which are beyond our control, including, but not limited to:

market and pricing risks due to concentrated ownership of our stock;

the ability to raise additional capital through the issuance of additional debt or equity or otherwise, including the cost and availability or perceived availability of additional capital;

announcements by us or our competitors, or market speculation, of acquisitions, spectrum acquisitions, new products, technologies, significant contracts, commercial relationships, or capital commitments;

the performance of SoftBank and SoftBank's ordinary shares or speculation about the possibility of future actions SoftBank may take in connection with us;

disruption to our operations or those of other companies critical to our network operations;

our ability to develop and market new and enhanced technologies, products and services on a timely and cost-effective basis, including any network improvement efforts;

recommendations by securities analysts or changes in their estimates concerning us;

changes in the ratings of our debt by rating agencies;

litigation;

changes in governmental actions, regulations, or approvals; and

perceptions of general market conditions in the technology and communications industries, the U.S. economy, and global market conditions.

We have entered into, or may enter into, agreements with various parties for certain business operations. Any difficulties experienced by us in these arrangements could result in additional expense, loss of subscribers and revenue, interruption of our services, or a delay in the roll-out of new technology.

We have entered into, and may in the future enter into, agreements with various third parties for the day-to-day execution of services, provisioning, maintenance, modernization, and densification of our wireless and wireline networks, including the permitting, building, installation, and ownership of certain portions of our new network densification; leases and subleases for space on communications towers; the development and maintenance of certain systems necessary for the operation of our business; customer service, related support to our wireless subscribers, outsourcing aspects of our wireline network and back office functions; and to provide network equipment, handsets, devices, and other equipment. For example, we depend heavily on local access facilities obtained from incumbent local exchange carriers (ILECs) to serve our data and voice subscribers, and payments to ILECs for these facilities are a significant cost of service for our Wireline segment. We also expect our dependence on key suppliers to continue as more advanced technologies are developed, which may lead to additional significant costs. If our key vendors fail to meet their contractual obligations or experience financial difficulty, or if we fail to adequately diversify our reliance among vendors, we may experience disruptions to our business operations or incur significant costs implementing alternative arrangements.

The products and services utilized by us and our suppliers and service providers may infringe on intellectual property rights owned by others.

Some of our products and services use intellectual property that we own. We also purchase products from suppliers, including device suppliers, and outsource services to service providers, including billing and customer care functions, that incorporate or utilize intellectual property. We and some of our suppliers and service providers have received, and may receive in the future, assertions and claims from third parties that the products or software utilized by us or our suppliers and service providers infringe on the patents or other intellectual property rights of these third parties. These claims could require us or an infringing supplier or service provider to cease certain activities or to cease selling the relevant products and services. These claims can be time-consuming and costly to defend and divert management resources. If these claims are successful, we could be forced to pay significant damages or stop selling certain products or services or stop using certain trademarks, which could adversely affect our results of operations.


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Negative outcomes of legal proceedings may adversely affect our business and financial condition.

We are regularly involved in a number of legal proceedings before various state and federal courts, the FCC, the FTC, the CFPB, and state and local regulatory agencies. These proceedings may be complicated, costly, and disruptive to our business operations. We may incur significant expenses in defending these matters and may be required to pay significant fines, awards, or settlements. In addition, litigation or other proceedings could result in restrictions on our current or future manner of doing business. Any of these potential outcomes, such as judgments, awards, settlements, or orders could have a material adverse effect on our business, financial condition, operating results, or ability to do business.

Our reputation and business may be harmed and we may be subject to legal claims if there is a loss, disclosure, misappropriation of, unauthorized access to, or other security breach of our proprietary or sensitive information.

Our information technology and other systems-including those of our third-party service providers-that maintain and transmit our proprietary information and our subscribers' information, including credit card information, location data, or other personal information may be compromised by a malicious third-party penetration of our network security or impacted by advertent or inadvertent actions or inactions by our employees and agents. As a result, our subscribers' information may be lost, disclosed, accessed, used, corrupted, destroyed, or taken without the subscribers' consent. Cyber attacks, such as the use of malware, computer viruses, denial of service attacks, or other means for disruption or unauthorized access, have increased in frequency, scope, and potential harm in recent years. We also purchase equipment and software from third parties that could contain software defects, Trojan horses, malware, or other means by which third parties could access our network or the information stored or transmitted on such network or equipment.

While to date, we have not been subject to cyber attacks or other cyber incidents which, individually or in the aggregate, have been material to our operations or financial condition, the preventive actions we take to reduce the risk of cyber incidents and protect our information technology and networks may be insufficient to repel a cyber attack in the future. In addition, the costs of such preventative actions may be significant, which may adversely affect our results of operations. Any major compromise of our data or network security, failure to prevent or mitigate a loss of our services or network, our proprietary information, or our subscribers' information, and delays in detecting any such compromise or loss, could disrupt our operations, impact our reputation and subscribers' willingness to purchase our service, and subject us to significant additional expenses. Such expenses could include incentives offered to existing subscribers and other business relationships in order to retain their business, increased expenditures on cyber security measures and the use of alternate resources, lost revenues from business interruption, and litigation, which could be material. Furthermore, the potential costs associated with any such cyber attacks could be greater than the insurance coverage we maintain.

In addition to cyber attacks, major equipment failures, natural disasters, including severe weather, terrorist acts or other disruptions that affect our wireline and wireless networks, including transport facilities, communications switches, routers, microwave links, cell sites, or other equipment or third-party owned local and long-distance networks on which we rely, could disrupt our operations, require significant resources to remedy, result in a loss of subscribers or impair our ability to attract new subscribers, which in turn could have a material adverse effect on our business, results of operations and financial condition.

If we are unable to improve our results of operations and as we continue to modernize our networks, we may be required to recognize an impairment of our long-lived assets, goodwill, or other indefinite-lived intangible assets, which could have a material adverse effect on our financial position and results of operations.

As a result of the SoftBank Merger, Sprint recognized goodwill at its acquisition-date estimate of fair value of approximately $6.6 billion, which has been entirely allocated to the wireless segment. Since goodwill was reflected at its estimate of fair value, there was no excess fair value over book value as of the date of the close of the SoftBank Merger. Additionally, we recorded $14.6 billion and $41.7 billion of long-lived assets and indefinite-lived intangible assets, respectively, as of the close of the SoftBank Merger. We evaluate the carrying value of our indefinite-lived assets, including goodwill, at least annually or more frequently whenever events or changes in circumstances 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. During the quarter ended December 31, 2014, we recorded an impairment loss of $1.9 billion and $233 million for the Sprint trade name and Wireline long-lived assets, respectively. 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 long-lived assets, goodwill, or other indefinite-lived assets, which could adversely affect our financial position and results of operations. In addition, as we continue to refine our network strategy, management may conclude, in future periods, that certain equipment assets in use will not be utilized as long as originally intended, which


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could result in an acceleration of depreciation expense. Moreover, certain equipment assets may never be deployed or redeployed, in which case cash and/or non-cash charges that could be material to our consolidated financial statements would be recognized.

Any acquisitions, strategic investments, or mergers may subject us to significant risks, any of which may harm our business.

As part of our long term strategy, we regularly evaluate potential acquisitions, strategic investments, and mergers, and we actively engage in discussions with potential counterparties. Over time, we may acquire, make investments in, or merge with companies that complement or expand our business. Some of these potential transactions could be significant relative to the size of our business and operations. Any such acquisitions would involve a number of risks and present financial, managerial and operational challenges, including:

diversion of management attention from running our existing business;

possible material weaknesses in internal control over financial reporting;

increased costs to integrate the networks, spectrum, technology, personnel, subscriber base, and business practices of the company involved in the acquisition, strategic investment, or merger with our business;

potential exposure to material liabilities not discovered in the due diligence process or as a result of any litigation arising in connection with such transactions;

significant transaction expenses in connection with any such transaction, whether consummated or not;

risks related to our ability to obtain any required regulatory approvals necessary to consummate any such transaction;

acquisition financing may not be available on reasonable terms or at all and any such financing could significantly increase our outstanding indebtedness or otherwise affect our capital structure or credit ratings; and

any acquired or merged business, technology, service, or product may significantly under-perform relative to our expectations, and we may not achieve the benefits we expect from our transaction, which could, among other things, also result in a write-down of goodwill and other intangible assets associated with such transaction.

Certain of these risks may also apply to the RadioShack transaction. For any or all of these reasons, our pursuit of an acquisition, investment, or merger may cause our actual results to differ materially from those anticipated.

Controlled Company Risks

As long as SoftBank controls us, other holders of our common stock will have limited ability to influence matters requiring stockholder approval and SoftBank's interest may conflict with ours and other stockholders.

As of March 31, 2016, SoftBank beneficially owned approximately 83% of the outstanding common stock of Sprint. As a result, until such time as SoftBank and its controlled affiliates hold shares representing less than a majority of the votes entitled to be cast by the holders of our outstanding common stock at a stockholder meeting, SoftBank generally will have the ability to control the outcome of any matter submitted for the vote of our stockholders, except in certain circumstances set forth in our certificate of incorporation or bylaws.

In addition, pursuant to our bylaws, we are subject to certain requirements and limitations regarding the composition of our board of directors. Many of those requirements and limitations expire on or prior to July 10, 2016. Thereafter, for so long as SoftBank and its controlled affiliates hold shares of our common stock representing at least a majority of the votes entitled to be cast by the holders of our common stock at a stockholder meeting, SoftBank will be able to freely nominate and elect all the members of our board of directors, subject only to a requirement that a certain number of directors qualify as "Independent Directors," as such term is defined in the NYSE listing rules and applicable laws. The directors elected by SoftBank will have the authority to make decisions affecting the capital structure of the Company, including the issuance of additional capital stock or options, the incurrence of additional indebtedness, the implementation of stock repurchase programs, and the declaration of dividends.

The interests of SoftBank may not coincide with the interests of our other stockholders or with holders of our indebtedness. SoftBank's ability, subject to the limitations in our certificate of incorporation and bylaws, to control all matters submitted to our stockholders for approval limits the ability of other stockholders to influence corporate matters and, as a result, we may take actions that our stockholders or holders of our indebtedness do not view as beneficial. As a result, the


19

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market price of our common stock or terms upon which we issue indebtedness could be adversely affected. In addition, the existence of a controlling stockholder may have the effect of making it more difficult for a third-party to acquire, or discouraging a third-party from seeking to acquire, the Company. A third-party would be required to negotiate any such transaction with SoftBank, and the interests of SoftBank with respect to such transaction may be different from the interests of our other stockholders or with holders of our indebtedness. In addition, the performance of SoftBank and SoftBank's ordinary shares or speculation about the possibility of future actions SoftBank may take in connection with us may adversely affect our share price or the trading price of our debt securities.

Subject to limitations in our certificate of incorporation that limit SoftBank's ability to engage in certain competing businesses in the U.S. or take advantage of certain corporate opportunities, SoftBank is not restricted from competing with us or otherwise taking for itself or its other affiliates certain corporate opportunities that may be attractive to the Company.

SoftBank's ability to eventually control our board of directors may make it difficult for us to recruit independent directors.

For so long as SoftBank and its controlled affiliates hold shares of our common stock representing at least a majority of the votes entitled to be cast by the holders of our common stock at a stockholders' meeting, SoftBank will be able to elect all of the members of our board of directors commencing in July 2016, which is three years following the effective time of the SoftBank Merger. Further, the interests of SoftBank and our other stockholders may diverge. Under these circumstances, persons who might otherwise accept an invitation to join our board of directors may decline.

Any inability to resolve favorably any disputes that may arise between the Company and SoftBank or its affiliates may adversely affect our business.

Disputes may arise between SoftBank or its affiliates and the Company in a number of areas, including:

business combinations involving the Company;

sales or dispositions by SoftBank of all or any portion of its ownership interest in us;

the nature, quality and pricing of services SoftBank or its affiliates may agree to provide to the Company;

arrangements with third parties that are exclusionary to SoftBank or its affiliates or the Company; and

business opportunities that may be attractive to both SoftBank or its affiliates and the Company.

We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated party.

We are a " controlled company " within the meaning of the NYSE rules and, as a result, rely on exemptions from certain corporate governance requirements that provide protection to stockholders of companies that are not "controlled companies."

SoftBank owns more than 50% of the total voting power of our common shares and, accordingly, we have elected to be treated as a " controlled company" under the NYSE corporate governance standards. As a controlled company, we are exempt under the NYSE standards from the obligation to comply with certain NYSE corporate governance requirements, including the requirements:

that a majority of our board of directors consists of independent directors;

that we have a corporate governance and nominating committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities;

that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities; and

that an annual performance evaluation of the nominating and governance committee and compensation committee be performed.

As a result of our use of the " controlled company" exemptions, holders of our common stock and debt securities may not have the same protection afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements.


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Regulatory authorities have imposed measures to protect national security and classified projects as well as other conditions that could have an adverse effect on Sprint.

As a precondition to approval of the SoftBank Merger, certain U.S. government agencies required that SoftBank and Sprint enter into certain agreements, including a National Security Agreement (NSA) under which SoftBank and Sprint have agreed to implement certain measures to protect national security, certain of which may materially and adversely affect our operating results due to increasing the cost of compliance with security measures, and limiting our control over certain U.S. facilities, contracts, personnel, vendor selection, and operations. If we fail to comply with our obligations under the NSA or other agreements, our ability to operate our business may be adversely effected.


Item 1B.

Unresolved Staff Comments

None.


Item 2.

Properties

Our corporate headquarters are located in Overland Park, Kansas and consist of approximately 3,853,000 square feet. Our gross property, plant and equipment at March 31, 2016 totaled $30.0 billion , as follows:

March 31,
2016

(in  billions)

Wireless

$

27.0


Wireline

1.2


Corporate and other

1.8


Total

$

30.0


Properties utilized by our Wireless segment generally consist of either leased or owned assets in the following categories: switching equipment, radio frequency equipment, cell site towers and related leasehold improvements, site development costs, network software, leased devices, internal-use software, retail fixtures and retail leasehold improvements.

Properties utilized by our Wireline segment generally consist of either leased or owned assets in the following categories: digital fiber optic cable, transport facilities, transmission-related equipment and network buildings.


Item 3.

Legal Proceedings

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 district court granted final approval of a settlement in August 2015, which did not have a material impact to our financial statements. Five stockholder derivative suits related to this 2009 stockholder suit 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 we have reached an agreement in principle to settle the matters, by agreeing to some governance provisions and by paying plaintiffs' attorneys fees in an immaterial amount. The hearing to approve the settlement has been set for May 26, 2016.


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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, discovery is substantially complete and our motion for summary judgment is pending. 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. Trial is scheduled to begin in October 2016. 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.

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. 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.


Item 4.

Mine Safety Disclosures

None.


22

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PART II



Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Common Share Data

Our common stock is traded under the stock symbol "S" on the New York Stock Exchange (NYSE). From January 1, 2012 through July 10, 2013, the stock that traded was the Series 1 common stock of Sprint Communications, Inc., which was formerly known as Sprint Nextel Corporation. On July 10, 2013, the SoftBank Merger closed, and after that date, the stock that trades on the NYSE is the common stock of Sprint Corporation. We currently have no non-voting common stock outstanding. The high and low common stock prices, as reported on the NYSE composite, were as follows:

Year Ended

March 31, 2016

Year Ended
March 31, 2015

High

Low

High

Low

Common stock market price

First quarter

$

5.39


$

4.41


$

9.76


$

7.38


Second quarter

5.29


3.10


8.68


5.36


Third quarter

5.12


3.50


6.45


3.79


Fourth quarter

4.19


2.18


5.45


4.01


Number of Stockholders of Record

As of May 13, 2016 , we had approximately 30,000 common stock record holders.

Dividends

We did not declare any dividends on our common stock for all periods presented in the consolidated financial statements. We are currently restricted from paying cash dividends by the terms of our revolving bank credit facility as described under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."

Issuer Purchases of Equity Securities

None.


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Table of Contents


Performance Graph

The graph below compares the cumulative total shareholder return for the Company's common stock with the S&P ® 500 Stock Index and the Dow Jones U.S. Telecommunications Index for the three fiscal years ended December 31, 2013, the three-month transition period ended March 31, 2014 and the fiscal years ended March 31, 2015 and 2016. Because Sprint Corporation common stock did not commence trading until after the SoftBank Merger, the graph below reflects the cumulative total shareholder return on the Series 1 common stock of Sprint Communications, Inc., our predecessor, through July 10, 2013 and, thereafter, reflects the total shareholder return on the common stock of Sprint Corporation. The graph assumes an initial investment of $100 on December 31, 2010 and, if any, the reinvestment of all dividends.


Value of $100 Invested on December 31, 2010

12/31/2010

12/31/2011

12/31/2012

12/31/2013

3/31/2014

3/31/2015

3/31/2016

Sprint Corporation

$

100.00


$

55.32


$

134.04


$

254.14


$

217.26


$

112.06


$

82.27


S&P 500 Index

$

100.00


$

102.11


$

118.45


$

156.82


$

159.65


$

179.98


$

183.19


Dow Jones U.S. Telecom Index

$

100.00


$

104.24


$

123.50


$

140.95


$

141.46


$

147.23


$

172.44




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Table of Contents


Item 6.

Selected Financial Data

The Company's financial statement presentations distinguish between the predecessor period (Predecessor) relating to Sprint Communications (formerly known as Sprint Nextel Corporation) for periods prior to the SoftBank Merger and the successor period (Successor) relating to Sprint Corporation, formerly known as Starburst II, for periods subsequent to the incorporation of Starburst II on October 5, 2012. The Successor financial information represents the activity and accounts of Sprint Corporation, which includes the activity and accounts of Starburst II prior to the close of the SoftBank Merger on July 10, 2013 and Sprint Communications, inclusive of the consolidation of Clearwire Corporation, prospectively following completion of the SoftBank Merger, beginning on July 11, 2013 (Post-merger period). The accounts and operating activity of Starburst II prior to the close of the SoftBank Merger primarily related to merger expenses that were incurred in connection with the SoftBank Merger (recognized in selling, general and administrative expense) and interest related to the $3.1 billion convertible bond (Bond) Sprint Communications, Inc. issued to Starburst II. The Predecessor financial information represents the historical basis of presentation for Sprint Communications for all periods prior to the SoftBank Merger. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional discussions on our trends and combined information.

The selected financial data presented below is not comparable for all periods presented primarily as a result of transactions such as the SoftBank Merger and acquisitions of Clearwire and certain assets of United States Cellular Corporation (U.S. Cellular) in 2013. All acquired companies' results of operations subsequent to their acquisition dates are included in our consolidated financial statements. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional discussions on our trends and combined information.

Successor

Predecessor

Year Ended March 31,

Year Ended March 31,

Three Months Ended

March 31,

Years Ended

 December 31,

191 Days Ended

July 10,

Three Months Ended

March 31,

Years Ended December 31,

2016

2015

2014

2013

2013

2012

2013

2013

2012

2011

(in millions, except per share amounts)

Results of Operations

Service revenue

$

27,174


$

29,542


$

7,876


$

-


$

15,094


$

-


$

16,895


$

7,980


$

32,097


$

30,768


Equipment revenue

5,006


4,990


999


-


1,797


-


1,707


813


3,248


2,911


Net operating revenues

32,180


34,532


8,875


-


16,891


-


18,602


8,793


35,345


33,679


Depreciation

5,794


3,797


868


-


2,026


-


3,098


1,422


6,240


4,455


Amortization

1,294


1,552


429


-


908


-


147


70


303


403


Operating income (loss)

310


(1,895

)

420


(14

)

(970

)

(33

)

(885

)

29


(1,820

)

108


Net loss

(1,995

)

(3,345

)

(151

)

(9

)

(1,860

)

(27

)

(1,158

)

(643

)

(4,326

)

(2,890

)

Loss per Share and Dividends (1)

Basic and diluted loss per common

share

$

(0.50

)

$

(0.85

)

$

(0.04

)

$

(0.54

)

$

(0.38

)

$

(0.21

)

$

(1.44

)

$

(0.96

)

Financial Position

Total assets

$

78,975


$

82,841


$

84,549


$

3,122


$

85,953


$

3,115


N/A

$

50,474


$

51,278


$

49,200


Property, plant and equipment, net

20,297


19,721


16,299


-


16,164


-


N/A

14,025


13,607


14,009


Intangible assets, net

51,117


52,455


55,919


-


56,272


-


N/A

22,352


22,371


22,428


Total debt, capital lease and financing obligations (including equity unit notes)

33,958


33,642


32,638


-


32,869


-


N/A

24,217


24,049


20,091


Stockholders' equity

19,783


21,710


25,312


3,122


25,584


3,110


N/A

6,474


7,087


11,427


Cash Flow Data

Net cash provided by (used in) operating activities

$

3,897


$

2,450


$

522


$

(2

)

$

(61

)

$

-


$

2,671


$

940


$

2,999


$

3,691


Capital expenditures - network and other

4,680


5,422


1,488


-


3,847


-


3,140


1,381


4,261


3,130


Capital expenditures - leased devices

2,292


582


-


-


-


-


-


-


-


-


_______________

(1)

We did not declare any dividends on our common shares in any of the periods reported.


25

Table of Contents


Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations


OVERVIEW

Business Overview

Sprint is a communications company offering a comprehensive range of wireless and wireline communications products and services that are designed to meet the needs of individual consumers, businesses, government subscribers, and resellers. 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, inclusive of Successor and Predecessor periods, and references to "Sprint Communications" are to Sprint Communications, Inc. and its consolidated subsidiaries.

Wireless segment earnings represented almost all of our total consolidated segment earnings for the year ended March 31, 2016 . Within the Wireless segment, postpaid wireless service revenue represents the most significant contributor to earnings, and is driven by the number of postpaid subscribers to our services, as well as the average revenue per user (ARPU).

Strategies and Key Priorities

Our business strategy is to be responsive to changing customer mobility demands of existing and potential customers, and to expand our business into new areas of customer value and economic opportunity through innovation and differentiation. To help lay the foundation for these future growth opportunities, our strategy revolves around targeted investment, in the following key priority areas:

Provide a network that delivers the consistent reliability, capacity and speed that customers demand;

Achieve a more competitive cost position in the industry through simplification;

Increase subscriber acquisition and retention and reduce churn;

Create an alternative financial structure to fuel growth and maximize shareholder value;

Attract and retain the best talent in the industry; and

Deliver a simplified and improved customer experience.    

To achieve these key priorities we are focusing on the following initiatives. To provide a network that delivers the consistent reliability, capacity and speed that customers demand, we expect to continue to optimize our 3G data network and invest in LTE deployment across all of our spectrum bands. We also expect to deploy new technologies that will help strengthen our competitive position, including the expected use of Voice over LTE, more extensive use of Wi-Fi and the use of small cells to further densify our network.

To achieve a more competitive cost position, we have established an Office of Cost Management with responsibility for identifying, operationalizing, and monitoring sustained improvements in operating costs and efficiencies. Also, we have deployed new cost management and planning tools across the entire organization to more effectively monitor expenditures.

We are focused on attracting and retaining subscribers by improving our sales and marketing initiatives. We have expanded our direct retail store presence through our relationship with RadioShack, as well as our Direct to You service that brings the Sprint store experience to our customers. We have demonstrated our value proposition through our new price plans, promotions, and payment programs and have deployed new local marketing and civic engagement initiatives in key markets.

Our alternative financial structure consists of transactions that leverage our assets such as the Handset Sale-leaseback Tranche 1 we entered into in November 2015 and the Network Equipment Sale-Leaseback, Handset Sale-Leaseback Tranche 2 and new unsecured financing facility we recently executed, described in more detail in "Liquidity and Capital Resources." In addition, we continue to identify other funding sources such as the potential monetization of certain spectrum holdings or certain real estate. In addition, with the Office of Cost Management, we have commenced major cost cutting initiatives to reduce operating expenses and improve our operating cash flows.

We seek to build a stronger management team by attracting new outside talent with world class experience and credentials while retaining selected members of the incumbent management team. We recently began operating in a regional model that will put key leadership closer to customers and allow us to better serve them in four geographic areas which are comprised of seventeen regions.

To deliver a simplified and improved customer experience, we are focusing on key subscriber touch points, pursuing process improvements and deploying platforms to simplify and enhance the interactions between us and our


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customers. In addition, we have established a Customer Experience Office to support our focus on net promoter score as our key measure in customer satisfaction.

Network

We will continue to take advantage of our deep spectrum position to deploy our 4G LTE Plus network. LTE Plus is currently available in over 200 markets leveraging carrier aggregation and beamforming for better data performance. Our deep 2.5GHz holdings will allow us to dedicate spectrum to deploy 60MHz wide channels for even faster data speeds. We plan to densify the network through the use of small cell technology, femto cells, in-building solutions and repeaters as well as continuing to use traditional macro sites. This approach builds the foundation for deployment of 5G wireless technology in the future while continuing to enhance the customer experience by adding data capacity, increasing the wireless data speeds available to our customers and improving network coverage for both voice and data services. As we continue to refine our network strategy and evaluate other potential network initiatives, we may incur future material charges associated with lease and access exit costs, loss from asset dispositions or accelerated depreciation, among others.

Shentel Transaction

On August 10, 2015, Shenandoah Telecommunications Company (Shentel) entered into a definitive agreement to acquire one of our wholesale partners, NTELOS Holdings Corp (nTelos). In connection with this definitive agreement, we entered into a series of agreements with Shentel, subject to regulatory approval, to, among other things, acquire certain assets such as spectrum, terminate our existing wholesale arrangement with nTelos, and amend our existing affiliate agreement with Shentel to include, among other things, the subscribers formerly under the wholesale arrangement with nTelos. The agreements will also expand the area in which Shentel provides wireless service to Sprint customers and will provide for more favorable economic terms. In April 2016, we received regulatory approval and the transaction was closed in May 2016. The total consideration for this transaction included approximately $195 million, on a net present value basis, of notes payable to Shentel. Sprint will satisfy its obligations under the notes payable over an expected term of five to six years. Approximately $110 million of the total purchase price will be recorded as a loss in the quarter ended June 30, 2016, which related to the termination of our pre-existing wholesale arrangement with nTelos.


RESULTS OF OPERATIONS

On July 9, 2013, Sprint Nextel Corporation (Sprint Nextel) completed the acquisition of the remaining equity interests in Clearwire Corporation and its consolidated subsidiary Clearwire Communications LLC (together "Clearwire") that it did not previously own (Clearwire Acquisition) in an all cash transaction. On July 10, 2013, SoftBank Corp. , which subsequently changed its name to SoftBank Group Corp., and certain of its wholly-owned subsidiaries (together, "SoftBank") completed the merger (SoftBank Merger) with Sprint Nextel contemplated by the Agreement and Plan of Merger, dated as of October 15, 2012 (as amended, the Merger Agreement), and the Bond Purchase Agreement, dated as of October 15, 2012 (as amended, the Bond Agreement). As a result of the SoftBank Merger, Starburst II became the parent company of Sprint Nextel. Immediately thereafter, Starburst II changed its name to Sprint Corporation and Sprint Nextel changed its name to Sprint Communications, Inc.

As a result of these transactions, the assets and liabilities of Sprint Communications and Clearwire were adjusted to estimated fair value on the respective closing dates. The Company's financial statement presentations distinguish between the predecessor period (Predecessor) relating to Sprint Communications for periods prior to the SoftBank Merger and the successor period (Successor) relating to Sprint Corporation, formerly known as Starburst II, for periods subsequent to the incorporation of Starburst II on October 5, 2012. The Successor financial information includes the activity and accounts of Sprint Corporation, which includes the activity and accounts of Starburst II prior to the close of the SoftBank Merger on July 10, 2013 and Sprint Communications, inclusive of the consolidation of Clearwire Corporation, prospectively following completion of the SoftBank Merger, beginning on July 11, 2013 (Post-merger period). The accounts and operating activity of Starburst II prior to the close of the SoftBank Merger primarily related to merger expenses that were incurred in connection with the SoftBank Merger (recognized in selling, general and administrative expense) and interest related to the $3.1 billion Bond Sprint Communications, Inc. issued to Starburst II. The Predecessor financial information represents the historical basis of presentation for Sprint Communications for all periods prior to the SoftBank Merger.

As a result of the SoftBank Merger, and in order to present Management's Discussion and Analysis in a way that offers investors a more meaningful period to period comparison, in addition to presenting and discussing our historical results of operations as reported in our consolidated financial statements in accordance with accounting principles generally accepted in the United States (U.S. GAAP), we have combined the 2013 Predecessor financial information with the 2013 Successor financial information, on an unaudited combined basis (Combined). The unaudited Combined data consists of Predecessor


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information for the 191-day period ended July 10, 2013 and Successor information for the year ended December 31, 2013. The Combined information for the year ended December 31, 2013 does not comply with U.S. GAAP and is not intended to represent what our consolidated results of operations would have been if the Successor had actually been formed on January 1, 2013 and acquired the Predecessor as of such date, nor have we made any attempt to either include or exclude expenses or income that would have resulted had the SoftBank Merger actually occurred on January 1, 2013.

U.S. GAAP Discussion and Analysis

The following discussion covers results for the Successor years ended March 31, 2016 compared to March 31, 2015 , the Successor years ended March 31, 2015 compared to December 31, 2013 and the Successor three-month transition period ended March 31, 2014 compared to the unaudited three-month Predecessor period ended March 31, 2013.

The results for the Successor three-month period ended March 31, 2013 were considered insignificant and are not comparable to the Successor year ended December 31, 2013 or three-month transition period ended March 31, 2014 as the Successor entity was established on October 5, 2012 for the sole purpose of completing the SoftBank Merger. Results for the three-month period ended March 31, 2013 primarily reflected merger expenses that were incurred (recognized in selling, general and administrative expense) and interest income related to the $3.1 billion Bond issued in connection with the SoftBank Merger. We have provided information regarding certain of the elements of the acquisition method of accounting affecting the Successor period ended December 31, 2013 and transition period ended March 31, 2014 results to enable further comparability.

Supplemental Discussion and Analysis

Results for the Successor year ended March 31, 2015 as compared to the unaudited Combined year ended December 31, 2013 are also discussed, to the extent necessary, to provide an analysis of results on comparable periods although the basis of presentation may not be comparable due to the application of the acquisition method of accounting. Additionally, in certain sections we discuss the activity of the Predecessor 191-day period ended July 10, 2013 to the extent it provides useful information for the activity during that period.

Acquisition Method of Accounting Effects to the Successor Periods Ending March 31, 2014 (Transition Period) and December 31, 2013

The allocation of the consideration transferred to assets acquired and liabilities assumed were based on estimated fair values as of the date of the SoftBank Merger, as described further in the Notes to the Consolidated Financial Statements. As a result, the following estimated impacts of purchase price accounting are included in our results of operations for the Successor three-month transition period ended March 31, 2014 and year ended December 31, 2013:

Reduced postpaid wireless revenue and wireless cost of service of approximately $29 million and $59 million each for the Successor three-month transition period ended March 31, 2014 and for the year ended December 31, 2013, respectively, as a result of purchase accounting adjustments to deferred revenue and deferred costs;

Reduced prepaid wireless revenue of approximately $96 million for the Successor year ended December 31, 2013 as a result of purchase accounting adjustments to eliminate deferred revenue;

Increased rent expense of $29 million and $55 million for the Successor three-month transition period ended March 31, 2014 and year ended December 31, 2013, respectively, which was included in cost of service, primarily attributable to the write-off of deferred rents associated with our operating leases, offset by the amortization of our net unfavorable leases recorded in purchase accounting;

Increased cost of products sold of approximately $31 million for the Successor year ended December 31, 2013 as a result of purchase accounting adjustments to accessory inventory;

Reduced depreciation expense of approximately $60 million and $400 million for the Successor three-month transition period ended March 31, 2014 and year ended December 31, 2013, respectively, as a result of purchase accounting adjustments reflecting a net decrease to property, plant and equipment;

Incremental amortization expense of approximately $359 million and $772 million for the Successor three-month transition period ended March 31, 2014 and year ended December 31, 2013, respectively, which was primarily attributable to the recognition of customer relationships of approximately $6.9 billion ; and

Decrease in pension expense of approximately $22 million and $46 million for the Successor three-month transition period ended March 31, 2014 and year ended December 31, 2013, respectively, which was


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primarily reflected in selling, general and administrative expense, due to the purchase accounting adjustment to unrecognized net periodic pension and other post-retirement benefits.

Predecessor 191-Day Period Ended July 10, 2013

Significant changes in the underlying trends affecting the Company's consolidated results of operations and net loss for the 191 days ended July 10, 2013 were as follows:

We recorded a gain on previously-held Clearwire equity interests of approximately $2.9 billion for the difference between the estimated fair value of the equity interests owned prior to the acquisition ($5.00 per share offer price less an estimated control premium of approximately $0.60) and the carrying value of approximately $325 million for those previously-held equity interests; and

Increased income tax expense was primarily attributable to taxable temporary differences as a result of the $2.9 billion gain on the previously-held equity interests in Clearwire, which was principally attributable to the increase in the fair value of Federal Communications Commission (FCC) licenses held by Clearwire and from amortization of FCC licenses. 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.

Consolidated Results of Operations

The following table provides an overview of the consolidated results of operations.

Successor

Combined

Successor

Predecessor

Year Ended
March 31,

Year Ended

March 31,

Three Months Ended
March 31,

Year Ended
December 31,

Year Ended

December 31,

191 Days Ended

July 10,

Three Months Ended
March 31,

2016

2015

2014

2013

2013

2013

2013

2013

(in millions)

Wireless segment earnings

$

8,051


$

5,894


$

1,837


$

-


$

4,948


$

2,178


$

2,770


$

1,395


Wireline segment earnings

92


113


12


-


494


222


272


128


Corporate, other and eliminations

3


(7

)

(5

)

(14

)

(33

)

(34

)

1


1


Consolidated segment earnings (loss)

8,146


6,000


1,844


(14

)

5,409


2,366


3,043


1,524


Depreciation

(5,794

)

(3,797

)

(868

)

-


(5,124

)

(2,026

)

(3,098

)

(1,422

)

Amortization

(1,294

)

(1,552

)

(429

)

-


(1,055

)

(908

)

(147

)

(70

)

Impairments

-


(2,133

)

-


-


-


-


-


-


Other, net (1)

(748

)

(413

)

(127

)

-


(1,085

)

(402

)

(683

)

(3

)

Operating income (loss)

310


(1,895

)

420


(14

)

(1,855

)

(970

)

(885

)

29


Interest expense

(2,182

)

(2,051

)

(516

)

-


(2,053

)

(918

)

(1,135

)

(432

)

Equity in losses of unconsolidated investments, net

-


-


-


-


(482

)

-


(482

)

(202

)

Gain on previously-held equity interests

-


-


-


-


2,926


-


2,926


-


Other income (expense), net

18


27


1


6


92


73


19


-


Income tax (expense) benefit

(141

)

574


(56

)

(1

)

(1,646

)

(45

)

(1,601

)

(38

)

Net loss

$

(1,995

)

$

(3,345

)

$

(151

)

$

(9

)

$

(3,018

)

$

(1,860

)

$

(1,158

)

$

(643

)

_______________________

(1)

Other, net for the year ended March 31, 2016 excludes $321 million related to losses on disposal of property, plant and equipment which is included in Wireless segment earnings.

Depreciation Expense

Successor Year Ended March 31, 2016 and Successor Year Ended March 31, 2015

Depreciation expense increased $2.0 billion , or 53% , in the year ended March 31, 2016 compared to the same period in 2015 primarily due to depreciation on leased devices of $1.8 billion in the year ended March 31, 2016 as a result of the device leasing program that was introduced in September 2014. Depreciation expense incurred on all leased devices in the year ended March 31, 2015 was $206 million . Depreciation also increased due to network asset additions partially offset by a decrease due to assets being retired or fully depreciated.

Successor Year Ended March 31, 2015 and Successor Year Ended December 31, 2013

Depreciation expense increased $1.8 billion , or 87% , in the year ended March 31, 2015 compared to the year ended December 31, 2013 primarily due to comparing a full twelve-month period to a shortened Post-merger period.


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Successor Three-Month Transition Period Ended March 31, 2014 and Predecessor Three-Month Period Ended March 31, 2013

Depreciation expense decreased $554 million , or 39% , in the Successor three-month transition period ended March 31, 2014 compared to the same Predecessor period in 2013 primarily due to the absence of accelerated depreciation associated with equipment related to our legacy Nextel and Sprint platforms. This reduction was partially offset by increased depreciation on asset additions primarily associated with improving the quality of our network and assets acquired as a result of the Clearwire Acquisition. The deployment of our network modernization program resulted in incremental charges during earlier stages of implementation including, but not limited to, an increase in depreciation associated with existing assets related to both the Nextel and Sprint platforms, due to changes in our estimates of the remaining useful lives of long-lived assets, and the expected timing and amount of asset retirement obligations, which continued to have an impact on our results of operations through 2013. The incremental effect of accelerated depreciation due to the implementation of our network modernization program was approximately $360 million during the Predecessor three-month period ended March 31, 2013 , of which the majority related to the Nextel platform, compared to no such accelerated depreciation in the three-month transition period ended March 31, 2014 .

Successor Year Ended March 31, 2015 and Combined Year Ended December 31, 2013

Specific efforts to improve the quality of our network, which began in 2011, as well as the shut down of the Nextel platform on June 30, 2013, resulted in incremental charges during earlier stages of these efforts including, but not limited to, an increase in depreciation associated with existing assets related to both the Nextel and Sprint platforms, due to changes in our estimates of the remaining useful lives of long-lived assets, and the expected timing and amount of asset retirement obligations, which continued to have an impact on our results of operations in 2013. The incremental effect of accelerated depreciation was approximately $800 million during the Predecessor 191-day period ended July 10, 2013, of which the majority related to the Nextel platform, which was shut down on June 30, 2013, compared to no such accelerated depreciation in the Successor year ended March 31, 2015. In addition to the explanations above and the effect of accelerated depreciation in the Predecessor period, the depreciation expense also decreased by approximately $160 million for the Successor year ended March 31, 2015 due to asset revaluations as a result of the SoftBank Merger in 2013.

Amortization Expense

Successor Year Ended March 31, 2016 and Successor Year Ended March 31, 2015

Amortization expense decreased $258 million , or 17% , in the year ended March 31, 2016 compared to the same period in 2015 , primarily due to customer relationship intangible assets that are amortized using the sum-of-the-months'-digits method, which results in higher amortization rates in early periods that will decline over time.

Successor Year Ended March 31, 2015 and Successor Year Ended December 31, 2013

Amortization expense increased $644 million , or 71% , in the year ended March 31, 2015 compared to the year ended December 31, 2013 , primarily due to comparing results for a full twelve-month period to a shortened Post-merger period which primarily consisted of amortization of customer relationships of approximately $6.9 billion that were recognized as a result of the SoftBank Merger. Customer relationship intangible assets are amortized using the sum-of-the-months'-digits method, which results in higher amortization rates in early periods that will decline over time.

Successor Three-Month Transition Period Ended March 31, 2014 and Predecessor Three-Month Period Ended March 31, 2013

Amortization expense increased $359 million , or 513% , in the Successor three-month transition period ended March 31, 2014 compared to the same Predecessor period in 2013 , primarily due to the recognition of definite-lived intangible assets related to customer relationships of approximately $6.9 billion as a result of the SoftBank Merger. Customer relationship intangible assets are amortized using the sum-of-the-months'-digits method, which results in higher amortization rates in early periods that will decline over time.

Impairments

During the three-month period ended December 31, 2014, we determined that recoverability of the carrying amount of the Sprint trade name should be evaluated for impairment due to changes in circumstances surrounding our Wireless reporting unit. As a result, we recorded an impairment loss of $1.9 billion, which is included in "Impairments" in our consolidated statements of operations. During the three-month period ended December 31, 2014, we also tested the recoverability of the Wireline asset group, which consists primarily of property, plant and equipment, due to continued declines in our Wireline segment earnings and our forecast that projected continued losses in future periods. As a result, we


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recorded an impairment loss of $233 million to reduce the carrying value of Wireline's property, plant and equipment to its estimated fair value, which is included in "Impairments" in our consolidated statements of operations.

Other, net

The following table provides additional information regarding items included in "Other, net."

Successor

Combined

Successor

Predecessor

Year Ended
March 31,

Year Ended
March 31,

Three Months Ended
March 31,

Year Ended
December 31,

Year Ended

December 31,

191 Days Ended

July 10,

Three Months Ended
March 31,

2016

2015

2014

2013

2013

2013

2013

(in millions)

Severance and exit costs

$

(409

)

$

(304

)

$

(52

)

$

(961

)

$

(309

)

$

(652

)

$

(25

)

Litigation

(193

)

(91

)

-


-


-


-


-


Loss on disposal of property, plant and equipment

(166

)

-


(75

)

-


-


-


-


Partial pension settlement

-


(59

)

-


-


-


-


-


Revision to estimate of a previously recorded reserve

20


41


-


-


-


-


-


Other

-


-


-


(124

)

(93

)

(31

)

22


Total expense

$

(748

)

$

(413

)

$

(127

)

$

(1,085

)

$

(402

)

$

(683

)

$

(3

)

Successor Year Ended March 31, 2016

Other, net represented an expense of $748 million in the year ended March 31, 2016 . We recognized litigation expense of $193 million for ongoing legal matters. In addition, we recognized severance and exit costs which included $216 million of severance primarily associated with reductions in our work force and $195 million of lease and access exit costs primarily associated with tower and cell site leases and backhaul access contracts for which we will no longer be receiving any economic benefit, of which $2 million was recognized as "Cost of services" in the consolidated statements of operations. We also recorded $166 million of loss on disposal of property, plant and equipment primarily related to cell site construction costs and other network costs that are no longer recoverable as a result of changes in the Company's network plans. In addition, we revised our estimate of a previously recorded reserve, resulting in approximately $20 million of income.

Successor Year Ended March 31, 2015

Other, net reflected an expense of $413 million in the year ended March 31, 2015. Severance and exit costs included $253 million of severance primarily associated with reductions in force and $13 million of lease exit costs primarily associated with tower and cell sites as well as facility closures. In addition, we recognized $38 million of costs during the period 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. Litigation of $91 million represented legal reserves for various pending legal suits and proceedings. Partial pension settlement was the result of the Company's Board of Directors approving a plan amendment to the Sprint Retirement Pension Plan (Plan) to offer certain terminated participants, who had not begun to receive Plan benefits, the opportunity to voluntarily elect to receive their benefits as an immediate lump sum distribution. The lump sum distribution created a settlement event that resulted in a $59 million charge. In addition, we revised our estimate of a previously recorded reserve, resulting in income of approximately $41 million.

Successor Three-Month Transition Period Ended March 31, 2014

Other, net reflected an expense of $127 million in the Successor three-month transition period ended March 31, 2014 . Severance and exit costs of $52 million for the three-month transition period ended March 31, 2014 included $14 million of severance primarily associated with reductions in force and $11 million of lease exit costs primarily associated with retail store closures. In addition, we recognized $31 million of costs during the period 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, of which $4 million was recognized as "Cost of services." During the three-month transition period ended March 31, 2014 , we recorded $75 million of loss on disposal of property, plant and equipment primarily related to network equipment assets that were no longer necessary for management's strategic plans.

Successor Year Ended December 31, 2013

Other, net reflected an expense of $402 million for the Successor year ended December 31, 2013. Severance and exit costs of $309 million for the Successor year ended December 31, 2013 included $219 million of severance primarily associated with reductions in force and $56 million of lease exit costs primarily associated with the decommissioning of the


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Nextel platform. In addition, we recognized $53 million of payments that will continue to be made under our backhaul access contracts for which we will no longer be receiving any economic benefit, and of which $19 million was recognized as "Cost of services." The $93 million reflected in "Other" included $100 million of business combination fees paid to unrelated parties in connection with the transactions with SoftBank and Clearwire and are classified within selling, general and administrative expense in our consolidated statements of operations. This is partially offset by $7 million of reimbursements related to 2012 hurricane-related charges recorded as a contra expense in cost of services in our consolidated statements of operations.

Predecessor 191-day Period Ended July 10, 2013

Other, net reflected an expense of $683 million in the Predecessor 191-day period ended July 10, 2013. Exit costs included lease exit costs of $478 million primarily associated with taking certain Nextel platform sites off-air by June 30, 2013 and $151 million 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. Of the $151 million of future payments, $35 million was recognized as "Cost of services" and $116 million was recognized in "Severance and exit costs." We also recognized $58 million of severance related to reductions in force. "Other" included $53 million of business combination fees paid to unrelated parties as described above, partially offset by a favorable ruling by the Texas Supreme Court in connection with the taxation of E911 services, which resulted in a non-cash benefit of $22 million.

Predecessor Three-Month Period Ended March 31, 2013

Other, net reflected an expense of $3 million in the Predecessor three-month period ended March 31, 2013 . Severance and exit costs $17 million of severance primarily associated with selective reductions in force and $8 million of lease exit costs associated with taking certain Nextel platform sites off-air. A favorable ruling by the Texas Supreme Court in connection with the taxation of E911 services resulted in a non-cash benefit of $22 million in the quarter ended March 31, 2013.

Interest Expense

Successor Year Ended March 31, 2016 and Successor Year Ended March 31, 2015

Interest expense increased $131 million , or 6% , in the year ended March 31, 2016 compared to the same period in 2015 , primarily due to interest associated with $1.5 billion aggregate principal amount of notes issued in February 2015. The effective interest rate, which includes capitalized interest, on the weighted average long-term debt balance of $33.8 billion was 6.5% in the year ended March 31, 2016 . See "Liquidity and Capital Resources" for more information on the Company's financing activities.

Successor Year Ended March 31, 2015 and Successor Year Ended December 31, 2013

Interest expense increased $1.1 billion , or 123% , in the year ended March 31, 2015 compared to the year ended December 31, 2013 primarily due to interest associated with debt of $9.0 billion issued in September and December 2013 as well as comparing a full calendar year to a shortened Post-merger period. The effective interest rate, which includes capitalized interest, on the weighted average long-term debt balance of $32.5 billion was 6.5% in the year ended March 31, 2015 compared to 7.7% for the Combined year ended December 31, 2013. The decrease in the effective interest rate is primarily due to interest expense of $247 million recognized in the Combined year ended December 31, 2013 related to the beneficial conversion feature on the $3.1 billion Bond. See "Liquidity and Capital Resources" for more information on the Company's financing activities.

Successor Three-Month Transition Period Ended March 31, 2014 and Predecessor Three-Month Period Ended March 31, 2013

Interest expense increased $84 million , or 19% , in the Successor three-month transition period ended March 31, 2014 compared to the same Predecessor period in 2013 , primarily due to interest associated with debt of $9.0 billion issued in September and December 2013 and the debt assumed as a result of the Clearwire acquisition. This was partially offset by premium amortization which was the result of our debt being revalued in connection with the SoftBank merger. The effective interest rate, which includes capitalized interest, on the weighted average long-term debt balance of $32.9 billion and $24.5 billion was 6.4% and 7.3% for the Successor three-month transition period ended March 31, 2014 and the Predecessor three-month period ended March 31, 2013 , respectively. See "Liquidity and Capital Resources" for more information on the Company's financing activities.


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Equity in Losses of Unconsolidated Investments, net

As a result of the Clearwire Acquisition on July 9, 2013 and the resulting consolidation of Clearwire results of operations into the accounts of the Company, the Successor period results of operations do not reflect any equity in losses of unconsolidated investments. Equity in losses from Clearwire were $482 million and $202 million for the Predecessor 190-day period ended July 9, 2013 and Predecessor unaudited three-month period ended March 31, 2013, respectively. The equity in losses from our investment in Clearwire consisted of our share of Clearwire's net loss and other adjustments, if any, such as non-cash impairment of our investment, gains or losses associated with the dilution of our ownership interest resulting from Clearwire's equity issuances, derivative losses associated with the change in fair value of the embedded derivative included in exchangeable notes between Clearwire and Sprint, and other items recognized by Clearwire Corporation that did not affect our economic interest. Sprint's equity in losses for the Predecessor 190-day period ended July 9, 2013, include a $65 million derivative loss associated with the change in fair value of the embedded derivative.

Other income (expense), net

The following table provides additional information on items included in "Other income (expense), net."

Successor

Combined

Successor

Predecessor

Year Ended
March 31,

Year Ended
March 31,

Three Months Ended
March 31,

Year Ended
December 31,

Year Ended

December 31,

191 Days Ended

July 10,

2016

2015

2014

2013

2013

2013

2013

(in millions)

Interest income

$

11


$

12


$

4


$

14


$

69


$

36


$

33


Gain (loss) on early retirement of debt

-


-


-


-


44


56


(12

)

Other, net

7


15


(3

)

(8

)

(21

)

(19

)

(2

)

Total

$

18


$

27


$

1


$

6


$

92


$

73


$

19


Successor Year Ended December 31, 2013

"Other income (expense), net" represented income of $73 million for the Successor year ended December 31, 2013. Other, net in the Successor year ended December 31, 2013 primarily consisted of $159 million of income related to the recognition of the remaining unaccreted convertible bond discount. In addition, the Successor year ended December 31, 2013 included a $175 million loss related to the embedded derivative associated with the Bond. Gain on early retirement of debt in the Successor year ended December 31, 2013 was a result of early retirement of the Clearwire Communications LLC and Clearwire Finance, Inc. 12% secured notes due 2015 and 12% secured notes due 2017.

Income Tax Expense

The Successor period income tax expense for the year ended March 31, 2016 of $141 million represented a consolidated effective tax rate of approximately (8)% . The Successor period income tax benefit for the year ended March 31, 2015 of $574 million represented a consolidated effective tax rate of approximately 15% . The Successor period income tax expense for the three-month transition period ended March 31, 2014 and the year ended December 31, 2013 of $56 million and $45 million , respectively, represented a consolidated effective tax rate of approximately (59)% and (3)% , respectively. The Predecessor period income tax expense for the three-month period ended March 31, 2013 of $38 million represented a consolidated effective tax rate of approximately (6)%. The income tax expense for the year ended March 31, 2016 was primarily attributable to tax expense resulting from taxable temporary differences from amortization of FCC licenses, partially offset by tax benefits from the reversal of state income tax valuation allowance on deferred tax assets and changes in state income tax laws enacted during the year. The income tax benefit for the year ended March 31, 2015 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 amortization of FCC licenses for income tax purposes. The expense for the 191 days ended July 10, 2013 of approximately $1.6 billion was primarily attributable to the recognition of tax expense on the $2.9 billion gain on previously-held equity interests in Clearwire. The income tax expense for the remaining Successor and Predecessor periods presented was primarily attributable to taxable temporary differences from amortization of FCC licenses and included net increases to the valuation allowance for federal and state deferred tax assets primarily related to net operating loss carryforwards generated during the respective periods of $82 million and $708 million , for the Successor three-month transition period ended March 31, 2014 and year ended December 31, 2013, respectively, and $265 million for the Predecessor three-month period ended March 31, 2013. Additional information related to items impacting the effective tax rates can be found in the Notes to the Consolidated Financial Statements.



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Segment Earnings - Wireless

Wireless segment earnings are a function of wireless service revenue, the sale of wireless devices (handsets and tablets), broadband devices, connected devices and accessories, leasing wireless devices, in addition to costs to acquire subscribers and network and interconnection costs to serve those subscribers, as well as other Wireless segment operating expenses. The costs to acquire our subscribers include the cost at which we sell our devices as well as the marketing and sales costs incurred to attract those subscribers. Network costs primarily represent switch and cell site costs, backhaul costs, and interconnection costs, which generally consist of per-minute usage fees and roaming fees paid to other carriers. The remaining costs associated with operating the Wireless segment include the costs to operate our customer care organization and administrative support. Wireless service revenue, costs to acquire subscribers, and variable network and interconnection costs fluctuate with the changes in our subscriber base and their related usage, but some cost elements do not fluctuate in the short term with these changes.

As shown by the table above under "Consolidated Results of Operations," Wireless segment earnings represented almost all of our total consolidated segment earnings for the year ended March 31, 2016 . Within the Wireless segment, postpaid wireless services represent the most significant contributors to earnings, and is driven by the number of postpaid subscribers to our services, as well as ARPU. The wireless industry is subject to competition to retain and acquire subscribers of wireless services. Most markets in which we operate have high rates of penetration for wireless services.

Device Financing Programs

In September 2013, we introduced an installment billing program that allows subscribers to purchase a device by paying monthly installments generally over 24 months. In September 2014, we introduced a leasing program, whereby qualified subscribers can lease a device for a contractual period of time.

Under the installment billing program, we recognize a majority of the revenue associated with future expected installment payments at the time of sale of the device. As compared to our traditional subsidized programs, this results in better alignment of the equipment revenue with the cost of the device. The impact to Wireless earnings from the sale of devices under our installment billing program is neutral except for the impact from the time value of money element related to the imputed interest on the installment receivable.

Under the leasing program, 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 March 31, 2016 , substantially all of our device leases were classified as operating leases. As a result, at lease inception, the devices are reclassified from inventory to property, plant and equipment when leased through Sprint's direct channels. For leases in the indirect channel, we purchase the devices at lease inception from the dealer, which is then capitalized to property, plant and equipment. While a majority of the revenue associated with installment sales is recognized at the time of sale along with the related cost of products, lease revenue is recorded monthly over the term of the lease and the cost of the device is depreciated to its estimated residual value generally over the lease term. During the years ended March 31, 2016 and 2015 , we leased devices through our Sprint direct channels totaling approximately $3.2 billion and $1.2 billion , respectively. These devices were reclassified from inventory to property, plant and equipment and, as such, the cost of the device was not recorded as cost of products compared to when purchased under the installment billing or traditional subsidized programs, which resulted in a significant positive impact to Wireless segment earnings. Depreciation expense incurred on all leased devices for the years ended March 31, 2016 and 2015 was $1.8 billion and $206 million , respectively. If the mix of leased devices continues to increase, we expect this positive impact on the financial results of Wireless segment earnings to continue and depreciation expense to increase. However, this benefit to Wireless segment earnings will be partially offset by the Handset Sale-Leaseback Tranche 1 transaction that was consummated in November 2015 where we sold and subsequently leased back certain devices leased to our customers (see Handset Sale-Leaseback in Liquidity and Capital Resources for further details). As a result, our cost of the devices sold to Mobile Leasing Solutions, LLC (MLS) is no longer recorded as depreciation expense, but rather recognized as rent expense within "Cost of products" during the leaseback periods.

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 (See Accounts Receivable Facility and Handset Sale-Leaseback in Liquidity and Capital Resources for further details) were designed to mitigate the significant use of cash from purchasing devices from original equipment manufacturers (OEMs) to fulfill our installment billing and leasing programs.


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Wireless Segment Earnings Trends

Sprint is offering lower monthly service fees without a traditional contract as an incentive to attract subscribers to certain of our service plans. These lower rates for service are available whether the subscriber brings their own handset, pays the full or near full retail price of the handset, purchases the handset under our installment billing program, or leases their handset through our leasing program. As the adoption rates of these plans increase throughout our base of subscribers, we expect our postpaid ARPU to continue to decline as a result of lower pricing associated with our new service plans as compared to our traditional subsidized programs, which reflect higher service revenue and lower equipment revenue; however, we also expect higher equipment revenue due to the installment billing and leasing programs to substantially offset these declines. Since inception, the combination of lower priced plans, and our installment billing and leasing programs have been accretive to Wireless segment earnings. We expect that trend to continue with the magnitude of the impact being dependent upon the rate of subscriber adoption.

We began to experience net losses of postpaid handset subscribers in mid-2013. Since the release of our new price plans, results have shown improvement in trends of handset subscribers; however, there can be no assurance that this trend will continue. We have taken initiatives to provide the best value in wireless service while continuing to enhance our network performance, coverage and capacity in order to attract and retain valuable handset subscribers. In addition, we are evaluating our cost model to operationalize a more effective cost structure.

The following table provides an overview of the results of operations of our Wireless segment.

Successor

Combined

Successor

Predecessor

Year Ended
March 31,

Year Ended
March 31,

Three Months Ended
March 31,

Year Ended
December 31,

Year Ended

December 31,

191 Days Ended

July 10,

Three Months Ended
March 31,

Wireless Segment Earnings

2016

2015

2014

2013

2013

2013

2013

(in millions)

Postpaid

$

19,463


$

21,181


$

5,719


$

23,442


$

10,983


$

12,459


$

5,916


Prepaid

4,986


4,905


1,232


4,917


2,265


2,652


1,227


Other (1)

178


458


145


359


331


28


-


Retail service revenue

24,627


26,544


7,096


28,718


13,579


15,139


7,143


Wholesale, affiliate and other

744


793


159


545


266


279


133


Total service revenue

25,371


27,337


7,255


29,263


13,845


15,418


7,276


Cost of services (exclusive of depreciation and amortization)

(8,069

)

(7,945

)

(2,106

)

(9,045

)

(4,342

)

(4,703

)

(2,171

)

Service gross margin

17,302


19,392


5,149


20,218


9,503


10,715


5,105


Service gross margin percentage

68

%

71

%

71

%

69

%

69

%

69

%

70

%

Equipment revenue

5,006


4,990


999


3,504


1,797


1,707


813


Cost of products (exclusive of depreciation and amortization)

(5,795

)

(9,309

)

(2,038

)

(9,475

)

(4,603

)

(4,872

)

(2,293

)

Selling, general and administrative expense

(8,141

)

(9,179

)

(2,273

)

(9,299

)

(4,519

)

(4,780

)

(2,230

)

Loss on disposal of property, plant and equipment

(321

)

-


-


-


-


-


-


Wireless segment earnings

$

8,051


$

5,894


$

1,837


$

4,948


$

2,178


$

2,770


$

1,395


___________________

(1 )

Represents service revenue primarily related to the acquisition of Clearwire on July 9, 2013.

Service Revenue

Our Wireless segment generates service revenue from the sale of wireless services and the sale of wholesale and other services. Service revenue consists of fixed monthly recurring charges, variable usage charges and miscellaneous fees such as activation fees, directory assistance, roaming, equipment protection, late payment and early termination charges, and certain regulatory related fees, net of service credits.

The ability of our Wireless segment to generate service revenue is primarily a function of:

revenue generated from each subscriber, which in turn is a function of the types and amount of services utilized by each subscriber and the rates charged for those services; and

the number of subscribers that we serve, which in turn is a function of our ability to retain existing subscribers and acquire new subscribers.

Retail comprises those subscribers to whom Sprint directly provides wireless services, whether those services are provided on a postpaid or a prepaid basis. We also categorize our retail subscribers as prime and subprime based upon subscriber credit profiles. We use proprietary scoring systems that measure the credit quality of our subscribers using several


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factors, such as credit bureau information, subscriber credit risk scores and service plan characteristics. Payment history is subsequently monitored to further evaluate subscriber credit profiles. Wholesale and affiliates are those subscribers who are served through MVNO and affiliate relationships and other arrangements. Under the MVNO relationships, wireless services are sold by Sprint to other companies that resell those services to subscribers.

Successor Year Ended March 31, 2016 and Successor Year Ended March 31, 2015

Retail service revenue decreased $1.9 billion , or 7% , for the Successor year ended March 31, 2016 compared to the year ended March 31, 2015 primarily due to a lower average revenue per subscriber driven by growth in both postpaid subscribers on our new plans and tablet sales. The decrease was partially offset by an increase in average postpaid subscribers mostly due to improved churn.

Wholesale, affiliate and other revenues decreased $49 million , or 6% , for the Successor year ended March 31, 2016 compared to the year ended March 31, 2015 primarily due to a decline in prepaid resellers and the impact of the shutdown of the Clearwire WiMAX network, partially offset by growth in postpaid resellers and connected devices. Approximately 64% of our total wholesale and affiliate subscribers represent connected devices. These devices generate revenue from usage which varies depending on the solution being utilized.

Successor Year Ended March 31, 2015 and Successor Year Ended December 31, 2013

Retail service revenue increased $13.0 billion , or 95% , for the Successor year ended March 31, 2015 compared to the year ended December 31, 2013 primarily due to comparing a full twelve-month period to a shortened Post-merger period as well as growth in our prepaid Boost brand that carries a higher average revenue per subscriber. These increases were offset by growth in tablet sales and postpaid subscribers on our new plans that tend to carry a lower average revenue per subscriber as well as a decline in average postpaid and prepaid subscribers, which resulted in an overall decrease in retail service revenue when comparing the Successor year ended March 31, 2015 to the Combined year ended December 31, 2013.

Wholesale, affiliate and other revenues increased $527 million , or 198% , for the Successor year ended March 31, 2015 compared to the year ended December 31, 2013 primarily due to comparing a full twelve-month period to a shortened Post-merger period. In addition, wholesale, affiliate and other revenues increased as a result of interest revenue associated with installment billing on handsets and an increase in revenues resulting from acquisitions in 2013. Approximately 53% of our total wholesale and affiliate subscribers represent connected devices.

Successor Three-Month Transition Period Ended March 31, 2014 and Predecessor Three-Month Period Ended March 31, 2013

Retail service revenue slightly decreased $47 million , or 1% , for the Successor three-month transition period ended March 31, 2014 compared to the same Predecessor period in 2013 . The decrease was driven by the loss of postpaid and prepaid subscribers due to the shut-down of the Nextel platform on June 30, 2013, partially offset by the postpaid and prepaid revenues resulting from the acquisitions in 2013.

Wholesale, affiliate and other revenues increased $26 million , or 20% , for the Successor three-month transition period ended March 31, 2014 compared to the same Predecessor period in 2013 primarily due to an increase in revenues resulting from acquisitions in 2013. Approximately 45% of our wholesale and affiliate subscribers represent connected devices.

Average Monthly Service Revenue per Subscriber and Subscriber Trends

The table below summarizes average number of retail subscribers. Additional information about the number of subscribers, net additions (losses) to subscribers, and average rates of monthly postpaid and prepaid subscriber churn for each quarter since the quarter ended March 31, 2013 may be found in the tables on the following pages.

Successor

Combined

Successor

Predecessor

Year Ended
March 31,

Year Ended
March 31,

Three Months Ended
March 31,

Year Ended
December 31,

Year Ended

December 31,

191 Days Ended

July 10,

Three Months Ended
March 31,

2016

2015

2014

2013

2013

2013

2013

(subscribers in thousands)

Average postpaid subscribers

30,561


30,068


30,639


31,124


30,957


31,296


31,566


Average prepaid subscribers

15,200


15,401


16,097


15,901


16,040


15,793


15,686


Average retail subscribers

45,761


45,469


46,736


47,025


46,997


47,089


47,252



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The table below summarizes ARPU. Additional information about ARPU for each quarter since the quarter ended March 31, 2013 may be found in the tables on the following pages.

Successor

Combined

Successor

Predecessor

Year Ended
March 31,

Year Ended
March 31,

Three Months Ended
March 31,

Year Ended
December 31,

Year Ended

December 31,

191 Days Ended

July 10,

Three Months Ended
March 31,

2016

2015

2014

2013

2013

2013

2013

ARPU (1) :

Postpaid

$

53.30


$

59.32


$

62.98


$

63.29


$

63.46


$

63.10


$

62.47


Prepaid

$

27.85


$

27.81


$

27.07


$

26.62


$

26.64


$

26.57


$

26.08


Average retail

$

44.85


$

48.65


$

50.61


$

50.89


$

50.89


$

50.85


$

50.39


_______________________

(1)

ARPU is calculated by dividing service revenue by the sum of the monthly average number of subscribers in the applicable service category. Changes in average monthly service revenue reflect subscribers for either the postpaid or prepaid service category who change rate plans, the level of voice and data usage, the amount of service credits which are offered to subscribers, plus the net effect of average monthly revenue generated by new subscribers and deactivating subscribers. Combined ARPU for 2013 aggregates service revenue from the Predecessor191-day period ended July 10, 2013 and the Successor year ended December 31, 2013 divided by the sum of the monthly average subscribers during the year ended December 31, 2013.

Successor Year Ended March 31, 2016 and Successor Year Ended March 31, 2015

Postpaid ARPU for the Successor year ended March 31, 2016 decreased compared to the year ended March 31, 2015 primarily due to the impact of subscriber migration to many of our new service plans, resulting in lower service fees, combined with ongoing growth in sales of tablets, which carry a lower revenue per subscriber. Prepaid ARPU for the Successor year ended March 31, 2016 increased compared to the year ended March 31, 2015 primarily due to an increase in average prepaid Boost subscribers that carry a higher ARPU compared to other prepaid brands, partially offset by the revenue impact of subscribers choosing lower priced plans in both the Boost and Virgin Mobile brands due to increased competition combined with a decrease in average Virgin Mobile subscribers.

Successor Year Ended March 31, 2015 and Successor Year Ended December 31, 2013

Postpaid ARPU for the Successor year ended March 31, 2015 decreased compared to the year ended December 31, 2013 primarily due to growth in sales of tablets, which carry a lower revenue per subscriber combined with the impact of subscriber migration to many of our new service plans, resulting in lower service fees. Prepaid ARPU for the Successor year ended March 31, 2015 increased compared to the year ended December 31, 2013 primarily due to an increase of higher average Boost subscribers which carry a higher ARPU as compared to other prepaid brands partially offset by decreases in total average subscribers, primarily in the Virgin Mobile and Assurance brands.

Successor Three-Month Transition Period Ended March 31, 2014 and Predecessor Three-Month Period Ended March 31, 2013

Postpaid ARPU for the Successor three-month transition period ended March 31, 2014 increased compared to the same Predecessor period in 2013 primarily due to the shut-down of the Nextel platform on June 30, 2013 and the impact of losing subscribers who carried a lower average revenue per subscriber. This increase was partially offset by a lower revenue per subscriber carried by subscribers acquired in the Clearwire and U.S. Cellular acquisitions and growth in sales of tablets, which also carry a lower revenue per subscriber. Prepaid ARPU for the Successor three-month transition period ended March 31, 2014 increased compared to the same Predecessor period in 2013 primarily due to the impact of a higher revenue per subscriber carried by subscribers acquired in the Clearwire acquisition combined with an increase in ARPU primarily for the Virgin Mobile prepaid brands as subscribers chose higher priced plans.


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Table of Contents


The following table shows (a) net additions (losses) of wireless subscribers, (b) our total subscribers, and (c) end of period connected device subscribers as of the end of each quarterly period beginning with the quarter ended March 31, 2013.

March 31,
2013

June 30,
2013

Sept 30,
2013

Dec 31,
2013

March 31,
2014

June 30,
2014

Sept 30,
2014

Dec 31,
2014

March 31,
2015

June 30,
2015

Sept 30,
2015

Dec 31,
2015

March 31,
2016

Net additions (losses) (in thousands) (1)

Sprint platform (2) :

Postpaid

12


194


(360

)

58


(231

)

(181

)

(272

)

30


211


310


378


501


56


Prepaid

568


(486

)

84


322


(364

)

(542

)

35


410


546


(366

)

(188

)

(491

)

(264

)

Wholesale and affiliates (3)

(224

)

(228

)

181


302


212


503


827


527


492


731


866


481


655


Total Sprint platform

356


(520

)

(95

)

682


(383

)

(220

)

590


967


1,249


675


1,056


491


447


Nextel platform:

Postpaid

(572

)

(1,060

)

-


-


-


-


-


-


-


-


-


-


-


Prepaid

(199

)

(255

)

-


-


-


-


-


-


-


-


-


-


-


Total Nextel platform

(771

)

(1,315

)

-


-


-


-


-


-


-


-


-


-


-


Transactions (3) :

Postpaid

-


(179

)

(175

)

(127

)

(102

)

(64

)

(64

)

(49

)

(41

)

(60

)

(70

)

(238

)

-


Prepaid

-


(20

)

(56

)

(103

)

(51

)

(77

)

(55

)

(39

)

(18

)

(66

)

(64

)

(231

)

-


Wholesale

-


-


13


25


69


27


13


13


22


(22

)

(12

)

(241

)

-


Total Transactions

-


(199

)

(218

)

(205

)

(84

)

(114

)

(106

)

(75

)

(37

)

(148

)

(146

)

(710

)

-


Total retail postpaid (5)

(560

)

(1,045

)

(535

)

(69

)

(333

)

(245

)

(336

)

(19

)

170


250


308


263


56


Total retail prepaid

369


(761

)

28


219


(415

)

(619

)

(20

)

371


528


(432

)

(252

)

(722

)

(264

)

Total wholesale and affiliate (5)

(224

)

(228

)

194


327


281


530


840


540


514


709


854


240


655


Total Wireless

(415

)

(2,034

)

(313

)

477


(467

)

(334

)

484


892


1,212


527


910


(219

)

447


End of period subscribers (in thousands) (1)

Sprint platform (2) :

Postpaid (4)

30,257


30,451


30,091


30,149


29,918


29,737


29,465


29,495


29,706


30,016


30,394


30,895


30,951


Prepaid

15,701


15,215


15,299


15,621


15,257


14,715


14,750


15,160


15,706


15,340


15,152


14,661


14,397


Wholesale and affiliates (3)(4)(5)

7,938


7,710


7,862


8,164


8,376


8,879


9,706


10,233


10,725


11,456


12,322


12,803


13,458


Total Sprint platform

53,896


53,376


53,252


53,934


53,551


53,331


53,921


54,888


56,137


56,812


57,868


58,359


58,806


Nextel platform:

Postpaid

1,060


-


-


-


-


-


-


-


-


-


-


-


-


Prepaid

255


-


-


-


-


-


-


-


-


-


-


-


-


Total Nextel platform

1,315


-


-


-


-


-


-


-


-


-


-


-


-


Transactions (3) :

Postpaid

-


173


815


688


586


522


458


409


368


308


238


-


-


Prepaid

-


39


704


601


550


473


418


379


361


295


231


-


-


Wholesale

-


-


106


131


200


227


240


253


275


253


241


-


-


Total Transactions

-


212


1,625


1,420


1,336


1,222


1,116


1,041


1,004


856


710


-


-


Total retail postpaid (4)

31,317


30,624


30,906


30,837


30,504


30,259


29,923


29,904


30,074


30,324


30,632


30,895


30,951


Total retail prepaid

15,956


15,254


16,003


16,222


15,807


15,188


15,168


15,539


16,067


15,635


15,383


14,661


14,397


Total wholesale and affiliates (4)(5)

7,938


7,710


7,968


8,295


8,576


9,106


9,946


10,486


11,000


11,709


12,563


12,803


13,458


Total Wireless

55,211


53,588


54,877


55,354


54,887


54,553


55,037


55,929


57,141


57,668


58,578


58,359


58,806



38

Table of Contents


March 31,
2013

June 30,
2013

Sept 30,
2013

Dec 31,
2013

March 31,
2014

June 30,
2014

Sept 30,
2014

Dec 31,
2014

March 31,
2015

June 30,
2015

Sept 30,
2015

Dec 31,
2015

March 31,
2016

Supplemental data - connected devices

End of period subscribers (in thousands) (5)

Retail postpaid

824


798


834


922


968


988


1,039


1,180


1,320


1,439


1,576


1,676


1,771


Wholesale and affiliates

2,803


3,057


3,298


3,578


3,882


4,192


4,635


5,175


5,832


6,620


7,338


7,930


8,575


Total

3,627


3,855


4,132


4,500


4,850


5,180


5,674


6,355


7,152


8,059


8,914


9,606


10,346


_______________________ 

(1)

A subscriber is defined as an individual line of service associated with each device activated by a customer. Subscribers that transfer from their original service category classification to another platform, or another service line within the same platform, are reflected as a net loss to the original service category and a net addition to their new service category. There is no net effect for such subscriber changes to the total wireless net additions (losses) or end of period subscribers.

(2)

Sprint platform refers to the Sprint network that supports the wireless service we provide through our multiple brands.

(3)

We acquired approximately 352,000 postpaid subscribers and 59,000 prepaid subscribers through the acquisition of assets from U.S. Cellular when the transaction closed on May 17, 2013. We acquired approximately 788,000 postpaid subscribers (excluding 29,000 Sprint wholesale subscribers transferred to Transactions postpaid subscribers that were originally recognized as part of our Clearwire MVNO arrangement), 721,000 prepaid subscribers, and 93,000 wholesale subscribers as a result of the Clearwire Acquisition when the transaction closed on July 9, 2013. Throughout the periods presented, subscribers either migrated to other Sprint offerings or service was canceled. As of March 31, 2016, we have no remaining transaction subscribers primarily due to the shut down of the WiMAX network.

(4)

Subscribers through some of our MVNO relationships have inactivity either in voice usage or primarily as a result of the nature of the device, where activity only occurs when data retrieval is initiated by the end-user and may occur infrequently. Although we continue to provide these subscribers access to our network through our MVNO relationships, approximately 1,110,000 subscribers at March 31, 2016 through these MVNO relationships have been inactive for at least six months, with no associated revenue during the six-month period ended March 31, 2016 .

(5)

End of period connected devices are included in total retail postpaid or wholesale and affiliates end of period subscriber totals for all periods presented.

The following table shows (a) our average rates of monthly postpaid and prepaid subscriber churn and (b) our recapture of Nextel platform subscribers that deactivated but remained as subscribers on the Sprint platform as of the end of each quarterly period beginning with the quarter ended March 31, 2013.

March 31,
2013

June 30,
2013

Sept 30,
2013

Dec 31,
2013

March 31,
2014

June 30,
2014

Sept 30,
2014

Dec 31,
2014

March 31,
2015

June 30,
2015

Sept 30,
2015

Dec 31,
2015

March 31,
2016

Monthly subscriber churn rate (1)

Sprint platform:

Postpaid

1.84

%

1.83

%

1.99

%

2.07

%

2.11

%

2.05

%

2.18

%

2.30

%

1.84

%

1.56

%

1.54

%

1.62

%

1.72

%

Prepaid (2)

3.05

%

5.22

%

3.57

%

3.01

%

4.33

%

4.44

%

3.76

%

3.94

%

3.84

%

5.08

%

5.06

%

5.82

%

5.65

%

Nextel platform:

Postpaid

7.57

%

33.90

%

-


-


-


-


-


-


-


-


-


-


-


Prepaid

12.46

%

32.13

%

-


-


-


-


-


-


-


-


-


-


-


Transactions (3) :

Postpaid

-


26.64

%

6.38

%

5.48

%

5.48

%

4.15

%

4.66

%

4.09

%

3.87

%

6.07

%

8.55

%

NM

NM

Prepaid

-


16.72

%

8.84

%

8.18

%

5.11

%

6.28

%

5.70

%

4.95

%

3.77

%

7.23

%

8.51

%

NM

NM

Total retail postpaid

2.09

%

2.63

%

2.09

%

2.15

%

2.18

%

2.09

%

2.22

%

2.33

%

1.87

%

1.61

%

1.61

%

1.87

%

1.72

%

Total retail prepaid

3.26

%

5.51

%

3.78

%

3.22

%

4.35

%

4.50

%

3.81

%

3.97

%

3.84

%

5.13

%

5.12

%

6.29

%

5.65

%

Nextel platform subscriber recaptures

Rate (4) :

Postpaid

46

%

34

%

-


-


-


-


-


-


-


-


-


-


-


Prepaid

34

%

39

%

-


-


-


-


-


-


-


-


-


-


-


Subscribers (5) :

Postpaid

264


364


-


-


-


-


-


-


-


-


-


-


-


Prepaid

67


101


-


-


-


-


-


-


-


-


-


-


-


_______________________ 

(1)

Churn is calculated by dividing net subscriber deactivations for the quarter by the sum of the average number of subscribers for each month in the quarter. For postpaid accounts comprising multiple subscribers, such as family plans and enterprise accounts, net deactivations are defined as deactivations in excess of subscriber activations in a particular account within 30 days. Postpaid and Prepaid churn consist of both voluntary churn, where the subscriber makes his or her own determination to cease being a subscriber, and involuntary churn, where the subscriber's service is terminated due to a lack of payment or other reasons.

(2)

In the quarter ended June 30, 2015, the Company revised its prepaid subscriber reporting to remove one of its rules that matches customers who disconnect and then re-engage within a specified period of time. This enhancement, which we believe represents a more precise churn calculation, had no impact on net additions, but did result in reporting higher deactivations and higher gross additions in the


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quarter. Without this revision, Sprint platform prepaid churn in the quarter would have been 4.33% and relatively flat compared to the same period in 2014. End of period prepaid subscribers and net prepaid subscriber additions for all periods presented were not impacted by the change.

(3)

Subscriber churn related to the acquisition of assets from U.S. Cellular and the Clearwire Acquisition.

(4)

Represents the recapture rate defined as the Nextel platform postpaid or prepaid subscribers, as applicable, that switched from the Nextel platform but activated service on the Sprint platform during each period over the total Nextel platform subscriber deactivations in the period for postpaid and prepaid, respectively.

(5)

Represents the Nextel platform postpaid and prepaid subscribers, as applicable, that switched from the Nextel platform during each period but remained with the Company as subscribers on the Sprint platform. Subscribers that deactivated service on the Nextel platform and activated service on the Sprint platform are included in the Sprint platform net additions for the applicable period.

The following table shows our postpaid and prepaid ARPU as of the end of each quarterly period beginning with the quarter ended March 31, 2013.

Predecessor

Successor

Combined (2)

Successor

March 31,
2013

June 30,
2013

10 Days Ended July 10, 2013

Sept 30,
2013

Sept 30,
2013

Dec 31,
2013

March 31,
2014

June 30,

2014

Sept 30,

2014

Dec 31,

2014

March 31,

2015

June 30,

2015

Sept 30,

2015

Dec 31,

2015

March 31,

2016

ARPU

Sprint platform:

Postpaid

$

63.67


$

64.20


$

64.71


$

64.24


$

64.28


$

64.11


$

63.52


$

62.07


$

60.58


$

58.90


$

56.94


$

55.48


$

53.99


$

52.48


$

51.68


Prepaid

$

25.95


$

26.96


$

26.99


$

25.14


$

25.33


$

26.78


$

26.45


$

27.38


$

27.19


$

27.12


$

27.50


$

27.81


$

27.66


$

27.44


$

27.72


Nextel platform:

Postpaid

$

35.43


$

36.66


$

-


$

-


$

-


$

-


$

-


$

-


$

-


$

-


$

-


$

-


$

-


$

-


$

-


Prepaid

$

31.75


$

34.48


$

-


$

-


$

-


$

-


$

-


$

-


$

-


$

-


$

-


$

-


$

-


$

-


$

-


Transactions (1) :

Postpaid

$

-


$

59.87


$

35.75


$

37.44


$

40.00


$

36.30


$

37.26


$

39.16


$

39.69


$

39.85


$

40.28


$

40.47


$

40.62


$

31.62


$

-


Prepaid

$

-


$

19.17


$

12.78


$

40.62


$

43.20


$

40.80


$

43.80


$

45.15


$

45.52


$

45.80


$

46.68


$

46.10


$

45.82


$

34.61


$

-


Total retail postpaid

$

62.47


$

63.59


$

64.55


$

63.48


$

63.69


$

63.44


$

62.98


$

61.65


$

60.24


$

58.63


$

56.72


$

55.31


$

53.87


$

52.41


$

51.68


Total retail prepaid

$

26.08


$

27.02


$

26.96


$

25.86


$

26.04


$

27.34


$

27.07


$

27.97


$

27.73


$

27.61


$

27.95


$

28.18


$

27.97


$

27.49


$

27.72


_______________________

(1)

Subscriber ARPU related to the acquisition of assets from U.S. Cellular and the Clearwire Acquisition.

(2)

Combined ARPU for the quarterly period ending September 30, 2013 aggregates service revenue from the Predecessor 10-day period ended July 10, 2013 and the Successor three-month period ended September 30, 2013 divided by the sum of the monthly average subscribers during the three months ended September 30, 2013.



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Subscriber Results

Sprint Platform Subscribers

Retail Postpaid - During the Successor year ended March 31, 2016 , net postpaid subscriber additions were 1,245,000 compared to net losses of 212,000 and 96,000 in the Successor year ended March 31, 2015 and the Combined year ended December 31, 2013 , respectively, inclusive of 545,000 , 1,334,000 , and 564,000 net additions of tablets, respectively, which generally have a significantly lower ARPU as compared to other wireless subscribers. During the Successor three-month transition period ended March 31, 2014, net postpaid subscriber losses were 231,000 compared to net additions of 12,000 in the Predecessor three-month period ended March 31, 2013, inclusive of 516,000 and 16,000 net additions of tablet devices, respectively. The primary driver for the net additions in the Successor year ended March 31, 2016 was our pricing plan promotions launched during the year combined with improvement in churn as subscribers benefit from the improved network quality. The primary driver for the net losses in the Successor year ended March 31, 2015 , the Successor three-month transition period ended March 31, 2014 and the Combined year ended December 31, 2013 was an increase in churn, primarily due to increased competition and network-related churn impacted by our network modernization program. Aggressive marketing efforts by other wireless carriers, including price reductions, to incent subscribers to switch carriers also negatively impact churn, which has a negative effect on earnings. Nextel platform and U.S. Cellular recaptures in the Combined year ended December 31, 2013 totaled 734,000.

Retail Prepaid - During the Successor year ended March 31, 2016 , we lost 1,309,000 net prepaid subscribers compared to adding 449,000 and 488,000 net prepaid subscribers in the Successor year ended March 31, 2015 and Combined year ended December 31, 2013 , respectively. The net losses in the Successor year ended March 31, 2016 were primarily due to subscriber losses in the Virgin Mobile prepaid brand primarily due to increasing competition. Net additions in the Successor year ended March 31, 2015 were primarily due to subscriber growth in our Boost brand as a result of new promotions in our indirect channels, partially offset by subscriber losses in the Virgin Mobile prepaid brands primarily due to continued competition. During the Successor three-month transition period ended March 31, 2014, we lost 364,000 net prepaid subscribers compared to adding 568,000 in the Predecessor three-month period ended March 31, 2013, primarily due to the timing and impact of churn related to the annual recertification of Assurance Wireless subscribers occurring earlier in calendar year 2014 compared to calendar year 2013, combined with a decline in gross subscriber additions across all prepaid brands. Net additions in the Combined year ended December 31, 2013 were primarily due to subscriber growth in our Boost prepaid brand, partially offset by the deactivation of subscribers related to new federal regulations and a one-time recertification of all Assurance Wireless subscribers in 2012.

The federal Lifeline program under which Assurance Wireless operates requires applicants to meet certain eligibility requirements and existing subscribers must recertify as to those requirements annually. Regulations adopted in 2012, which impact all Lifeline carriers, imposed stricter rules on the subscriber eligibility requirements and recertification. These new regulations also required a one-time recertification of the entire June 1, 2012 subscriber base by December 31, 2012. Accounts of subscribers who failed to respond by December 31, 2012 were suspended and made subject to our prepaid churn rules as described below (or 365 days in a limited number of states). However, subscribers could re-apply prior to being deactivated and also had the ability to receive by-the-minute service at their own expense. We deactivated the accounts of approximately 1.2 million subscribers in the quarter ended June 30, 2013 primarily related to the recertification process.

Prepaid subscribers are generally deactivated between 60 and 150 days from the later of the date of initial activation or replenishment; however, prior to account deactivation, targeted retention programs can be offered to qualifying subscribers to maintain ongoing service by providing up to an additional 150 days to make a replenishment. Subscribers targeted through these retention offers are not included in the calculation of churn until their retention offer expires without a replenishment to their account.

Wholesale and Affiliate Subscribers - Wholesale and affiliate subscribers represent customers that are served on our networks through companies that resell our wireless services to their subscribers, customers residing in affiliate territories and connected devices that utilize our network. Of the 13.5 million Sprint Platform subscribers included in wholesale and affiliates, approximately 64% represent connected devices. Wholesale and affiliate subscriber net additions were 2,733,000 during the Successor year ended March 31, 2016 , compared to 2,349,000 and 31,000 during the Successor year ended March 31, 2015 and the Combined year ended December 31, 2013 , respectively, inclusive of net additions of connected devices totaling 2,743,000 , 1,950,000 , and 908,000 , respectively. The primary driver for net additions in the Successor years ended March 31, 2016 , March 31, 2015 and the Combined year ended December 31, 2013 is primarily attributable to growth in connected devices. Net additions were 212,000 during the Successor three-month transition period ended March 31, 2014 compared to net losses of 224,000 during the Predecessor three-month period ended March 31, 2013, inclusive of net


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Table of Contents


additions of connected devices totaling 304,000 and 133,000 , respectively. Net additions were primarily attributable to growth in connected device subscribers as compared to net losses in the Predecessor three-month period 2013 from the Lifeline programs offered by our MVNO's selling prepaid services affected by new federal regulations, similar to the impact on our Assurance Wireless brand in Retail Prepaid above.

Transactions Subscribers

As part of the acquisition of assets from U.S. Cellular, which closed in May 2013, we acquired 352,000 postpaid subscribers and 59,000 prepaid subscribers. As part of the Clearwire Acquisition in July 2013, we acquired 788,000 postpaid subscribers (exclusive of Sprint platform wholesale subscribers acquired through our MVNO relationship with Clearwire that were transferred to postpaid subscribers within Transactions), 721,000 prepaid subscribers, and 93,000 wholesale subscribers. As of March 31, 2016, we have no remaining transaction subscribers primarily due to the shutdown of the WiMAX network. For the Successor year ended March 31, 2016 , we had net postpaid subscriber losses of 368,000 , net prepaid subscriber losses of 361,000 and net wholesale subscriber losses of 275,000 . For the Successor year ended March 31, 2015 , we had net postpaid subscriber losses of 218,000 , net prepaid subscriber losses of 189,000 and net wholesale subscriber additions of 75,000 . For the Successor three-month transition period ended March 31, 2014 , we had net postpaid subscriber losses of 102,000 , net prepaid subscriber losses of 51,000 and net wholesale subscriber additions of 69,000 , of which approximately 3,000 postpaid subscribers were recaptured on the Sprint platform. For the remainder of the Combined year ended December 31, 2013 , we had net postpaid subscriber losses of 481,000 , net prepaid subscriber losses of 179,000 and net wholesale subscriber additions of 38,000 , of which approximately 106,000 and 8,000 postpaid and prepaid subscribers, respectively, were recaptured on the Sprint platform.

Cost of Services

Cost of services consists primarily of:

costs to operate and maintain our networks, including direct switch and cell site costs, such as rent, utilities, maintenance, labor costs associated with network employees, and spectrum frequency leasing costs;

fixed and variable interconnection costs, the fixed component of which consists of monthly flat-rate fees for facilities leased from local exchange carriers and other providers based on the number of cell sites and switches in service in a particular period and the related equipment installed at each site, and the variable component of which generally consists of per-minute use fees charged by wireline providers for calls terminating on their networks, which fluctuate in relation to the level and duration of those terminating calls;

long distance costs paid to the Wireline segment;

costs to service and repair devices;

regulatory fees;

roaming fees paid to other carriers; and

fixed and variable costs relating to payments to third parties for the subscriber use of their proprietary data applications, such as messaging, music and cloud services and connected vehicle fees.

Successor Year Ended March 31, 2016 and Successor Year Ended March 31, 2015

Cost of services increased $124 million , or 2% , for the Successor year ended March 31, 2016 compared to the Successor year ended March 31, 2015 primarily due to increased service and repair costs as a result of higher costs per unit of new and used devices. These increases were partially offset by decreases in roaming costs primarily due to lower rates.

Successor Year Ended March 31, 2015 and Successor Year Ended December 31, 2013

Cost of services increased $3.6 billion , or 83% , for the Successor year ended March 31, 2015 compared to the year ended December 31, 2013 . The increase was primarily due to comparing results for a full twelve-month period ending March 31, 2015 to the shortened Post-merger period and increases as a result of the Clearwire Acquisition. These increases were offset by decreases in roaming and other network costs such as rent, utilities, backhaul and labor as a result of declining costs associated with improvements in the quality of our network and the shut-down of the Nextel platform in June 2013, which resulted in an overall decrease in cost of services when comparing the Successor year ended March 31, 2015 to the Combined year ended December 31, 2013.


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Table of Contents


Successor Three-Month Transition Period Ended March 31, 2014 and Predecessor Three-Month Period Ended March 31, 2013

Cost of services decreased $65 million , or 3% , for the Successor three-month transition period ended March 31, 2014 compared to the same Predecessor period in 2013 , primarily reflecting reduced network costs such as rent, utilities and backhaul costs related to the shut-down of the Nextel platform in June 2013 combined with a decrease in service and repair costs due to a decline in the volume and frequency of repairs and a decrease in roaming fees due to lower volume and rates, partially offset by net increases as a result of the Clearwire Acquisition.

Equipment Revenue and Cost of Products

We recognize equipment revenue and corresponding costs of devices when title and risk of loss passes to the indirect dealer or end-use subscriber, assuming all other revenue recognition criteria are met. Our devices are sold under the subsidy program, the installment billing program, or leased under the leasing program. Under the subsidy program, we offer certain incentives to retain and acquire subscribers such as new devices at discounted prices. The cost of these incentives is recorded as a reduction to equipment revenue upon activation of the device with a service contract. Under the installment billing program, the device is sold at or near full retail price and we recognize most of the future expected installment payments at the time of sale of the device.

Cost of products includes equipment costs (primarily devices and accessories), order fulfillment related expenses, and write-downs of device and accessory inventory related to shrinkage and obsolescence. Additionally, cost of products is reduced by any rebates that are earned from the equipment manufacturers. Cost of products in excess of the net revenue generated from equipment sales is referred to in the industry as equipment net subsidy. As subscribers migrate from acquiring devices through our subsidy program to installment billing or choose to lease under our leasing program, equipment net subsidy continues to decline. We also make incentive payments to certain indirect dealers who purchase devices directly from OEMs or other device distributors. Those payments are recognized as selling, general and administrative expenses when the device is activated with a Sprint service plan because Sprint does not recognize any equipment revenue or cost of products for those transactions. (See Selling, General and Administrative Expense below.)

The net impact to equipment revenue and cost of products from the sale of devices under our installment billing program is relatively neutral except for the impact from the time value of money element related to the imputed interest on the installment receivables. Under the leasing program, lease revenue is recorded over the term of the lease. The cost of the leased device is depreciated to its estimated residual value generally over the lease term. During the years ended March 31, 2016 and 2015 , we leased devices through our Sprint direct channels totaling approximately $3.2 billion and $1.2 billion , respectively, which were reclassified from inventory to property, plant and equipment and, as such, the cost of the device was not recorded as cost of products compared to when purchased under the installment billing or traditional subsidized programs.

Successor Year Ended March 31, 2016 and Successor Year Ended March 31, 2015

Equipment revenue increased $16 million , or remained relatively flat, for the Successor year ended March 31, 2016 compared to the Successor year ended March 31, 2015 , primarily due to higher revenue from the leasing program of approximately $1.7 billion and a higher average sales price per postpaid handset sold, which was primarily offset by a decrease in postpaid handsets sold as a result of Brightstar Corp. (Brightstar) purchasing inventory from the OEMs to sell directly to our indirect dealers and more subscribers choosing to lease their device, combined with lower average sales price per prepaid handset sold. Cost of products decreased $3.5 billion , or 38% , for the Successor year ended March 31, 2016 compared to the Successor year ended March 31, 2015 primarily due to a decrease in postpaid handsets sold as a result of Brightstar purchasing inventory from the OEMs to sell directly to our indirect dealers and subscribers choosing to lease devices instead of purchasing them.

Successor Year Ended March 31, 2015 and Successor Year Ended December 31, 2013

Equipment revenue increased $3.2 billion , or 178% , and cost of products increased $4.7 billion , or 102% , for the Successor year ended March 31, 2015 compared to the Successor year ended December 31, 2013 , primarily due to comparing results for a full twelve-month period to a shortened Post-merger period. In addition, equipment revenue increased due to higher revenue from the installment billing and leasing programs and a higher average sales price per postpaid handset sold, partially offset by a decrease in postpaid handsets sold as a result of customers choosing to lease devices instead of purchasing them. Cost of products also increased due to higher average cost per handset sold for postpaid handsets, combined with an increase in prepaid handsets sold. These increases were partially offset by a decrease in postpaid handsets sold as a result of customers choosing to lease devices instead of purchasing them and a lower average cost per handset sold for


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prepaid handsets, which resulted in an overall decrease in cost of products when comparing the Successor year ended March 31, 2015 to the Combined year ended December 31, 2013.

Successor Three-Month Transition Period Ended March 31, 2014 and Predecessor Three-Month Period Ended March 31, 2013

Equipment revenue increased $186 million , or 23% , for the Successor three-month transition period ended March 31, 2014 compared to the same Predecessor period in 2013 . The increase in equipment revenue was primarily due to higher average sales prices per postpaid and prepaid device sold combined with the impact of a different revenue recognition model related to our installment billing program for device purchases. The increase was partially offset by fewer postpaid and prepaid handsets sold. Cost of products declined $255 million , or 11% , for the Successor three-month transition period ended March 31, 2014 compared to the same Predecessor period in 2013 , primarily due to fewer postpaid and prepaid handsets sold, slightly offset by higher average cost per device sold for postpaid and prepaid devices.

Selling, General and Administrative Expense

Sales and marketing costs primarily consist of subscriber acquisition costs, including commissions paid to our indirect dealers, third-party distributors and retail sales force for new device activations and upgrades, residual payments to our indirect dealers, commission payments made to OEMs or other device distributors for direct source handsets, payroll and facilities costs associated with our retail sales force, marketing employees, advertising, media programs and sponsorships, including costs related to branding. General and administrative expenses primarily consist of costs for billing, customer care and information technology operations, bad debt expense and administrative support activities, including collections, legal, finance, human resources, corporate communications, strategic planning, and technology and product development.

Successor Year Ended March 31, 2016 and Successor Year Ended March 31, 2015

Sales and marketing expense decreased $272 million , or 5% , for the Successor year ended March 31, 2016 compared to the Successor year ended March 31, 2015 , primarily due to lower media spend and a decrease in payments to OEMs for direct source handsets as a result of lower volume of device sales, partially offset by higher retail labor costs.

General and administrative costs decreased $766 million , or 20% , for the Successor year ended March 31, 2016 compared to the Successor year ended March 31, 2015 , primarily due to a decrease in bad debt expense combined with declines in other general and administrative expenses due to reduced headcount and other cost-savings initiatives. Bad debt expense decreased $446 million , or 50% , for the Successor year ended March 31, 2016 compared to the Successor year ended March 31, 2015 primarily related to an improved aging as a result of customer credit profile improvement and fewer accounts written off due to improvements in churn, partially offset by a higher average balance of accounts written off.

Successor Year Ended March 31, 2015 and Successor Year Ended December 31, 2013

Sales and marketing expense was $5.3 billion for the Successor year ended March 31, 2015 representing an increase of $2.7 billion , or 102% , compared to the Successor year ended December 31, 2013 . The increase was primarily due to comparing results for a full twelve-month period ending March 31, 2015 to the shortened Post-merger period ending December 31, 2013 , combined with higher advertising costs related to new promotional campaigns. These increases were offset by a reduction in labor-related costs due to our reduction in force and retail store closures in addition to lower commission expense as sales shifted to more cost-effective channels, which resulted in an overall decrease in sales and marketing expense when comparing the Successor year ended March 31, 2015 to the Combined year ended December 31, 2013.

General and administrative costs were $3.9 billion for the Successor year ended March 31, 2015 representing an increase of $2.0 billion , or 104% , compared to the Successor year ended December 31, 2013 , primarily due to comparing results for a full twelve-month period ending March 31, 2015 to the shortened Post-merger period ending December 31, 2013 , combined with an increase in bad debt expense primarily associated with the increase in installment receivables. These increases were offset by a decrease in customer care costs primarily due to lower call volumes and labor-related initiatives, which resulted in an overall decrease in general and administrative costs when comparing the Successor year ended March 31, 2015 to the Combined year ended December 31, 2013.

Successor Three-Month Transition Period Ended March 31, 2014 and Predecessor Three-Month Period Ended March 31, 2013

Sales and marketing expense was $1.4 billion representing an increase of $70 million , or 5% , for the Successor three-month transition period ended March 31, 2014 compared to the same Predecessor period in 2013 . The increase was primarily due to higher media spend and commission expense, partially offset by a reduction in labor related costs due to our reduction in force and retail store closures.


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General and administrative costs were $897 million , representing a decrease of $27 million , or 3% , for the Successor three-month transition period ended March 31, 2014 compared to the same Predecessor period in 2013 , primarily reflecting a decrease in customer care costs primarily due to lower call volumes and labor related initiatives, partially offset by an increase in bad debt expense. Bad debt expense was $155 million for the three-month transition period ended March 31, 2014 , representing a $72 million, or 87%, increase compared to bad debt expense of $83 million for the same Predecessor period in 2013 . The increase in bad debt expense primarily reflects the impact of increased receivables related to our installment billing program.

Loss on Disposal of Property, Plant and Equipment

For the Successor year ended March 31, 2016 , loss on disposal of property, plant and equipment is a result of approximately $65 million in net losses recognized upon the sale of devices to MLS under the Handset Sale-Leaseback Tranche 1 transaction, which represented the difference between the fair value and net book value of the devices sold. In addition, approximately $256 million in 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. If customers continue to not return devices, we may have material losses in future periods. Similar charges are and have been incurred for devices sold under our subsidy program as equipment net subsidy.


Segment Earnings - Wireline

We provide a broad suite of wireline voice and data communications services to other communications companies and targeted business subscribers. In addition, we provide voice, data and IP communication services to our Wireless segment. We provide long distance services and operate all-digital global long distance and Tier 1 IP networks. Our services and products include domestic and international data communications using various protocols such as multiprotocol label switching technologies (MPLS), IP, managed network services, Voice over Internet Protocol (VoIP), Session Initiated Protocol (SIP), and traditional voice services. Our IP services can also be combined with wireless services. Such services include our Sprint Mobile Integration service, which enables a wireless handset to operate as part of a subscriber's wireline voice network, and our DataLink SM service, which uses our wireless networks to connect a subscriber location into their primarily wireline wide-area IP/MPLS data network, making it easy for businesses to adapt their network to changing business requirements. In addition to providing services to our business customers, the wireline network is carrying increasing amounts of voice and data traffic for our Wireless segment as a result of growing usage by our wireless subscribers.

We continue to assess the portfolio of services provided by our Wireline business and are focusing our efforts on IP-based data services and de-emphasizing stand-alone voice services and non-IP-based data services. We also continue to provide voice services primarily to business consumers. Our Wireline segment markets and sells its services primarily through direct sales representatives.

Wireline segment earnings are primarily a function of wireline service revenue, network and interconnection costs, and other Wireline segment operating expenses. Network costs primarily represent special access costs and interconnection costs, which generally consist of domestic and international per-minute usage fees paid to other carriers. The remaining costs associated with operating the Wireline segment include the costs to operate our customer care and billing organizations in addition to administrative support. Wireline service revenue and variable network and interconnection costs fluctuate with the changes in our customer base and their related usage, but some cost elements do not fluctuate in the short term with the changes in our customer usage. Our wireline services provided to our Wireless segment 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. Declines in wireline segment earnings related to intercompany pricing rates do not affect our consolidated results of operations as our Wireless segment benefits from an equivalent reduction in cost of service.


45

Table of Contents


The following table provides an overview of the results of operations of our Wireline segment.

Successor

Combined

Successor

Predecessor

Year Ended
March 31,

Year Ended
March 31,

Three Months Ended
March 31,

Year Ended
December 31,

Year Ended

December 31,

191 Days Ended

July 10,

Three Months Ended
March 31,

Wireline Segment Earnings

2016

2015

2014

2013

2013

2013

2013

(in millions)

Voice

$

840


$

1,174


$

352


$

1,490


$

719


$

771


$

352


Data

171


213


62


326


138


188


94


Internet

1,284


1,353


345


1,660


747


913


434


Other

87


74


11


61


32


29


13


Total net service revenue

2,382


2,814


770


3,537


1,636


1,901


893


Cost of services

(1,962

)

(2,338

)

(668

)

(2,637

)

(1,235

)

(1,402

)

(661

)

Service gross margin

420


476


102


900


401


499


232


Service gross margin percentage

18

%

17

%

13

%

25

%

25

%

26

%

26

%

Selling, general and administrative expense

(328

)

(363

)

(90

)

(406

)

(179

)

(227

)

(104

)

Wireline segment earnings

$

92


$

113


$

12


$

494


$

222


$

272


$

128


Wireline Revenue

Successor Year Ended March 31, 2016 and Successor Year Ended March 31, 2015

Voice Revenues

Voice revenues for the Successor year ended March 31, 2016 decreased $334 million , or 28% , compared to the Successor year ended March 31, 2015 . The decrease was primarily driven by lower volume and overall rate declines, primarily due to decreases in international hubbing volumes, combined with the decline in prices for the sale of services to our Wireless segment. Voice revenues generated from the sale of services to our Wireless segment represented 39% of total voice revenues for the Successor year ended March 31, 2016 compared to 31% in the year ended March 31, 2015 .

Data Revenues

Data revenues reflect sales of data services, primarily Private Line and managed network services bundled with non-IP-based data access. Data revenues decreased $42 million , or 20% , for the Successor year ended March 31, 2016 compared to the Successor year ended March 31, 2015 as a result of customer churn, primarily related to Private Line. Data revenues generated from the provision of services to the Wireless segment represented 40% of total data revenue for each of the Successor year ended March 31, 2016 compared to 41% in the year ended March 31, 2015 .

Internet Revenue

IP-based data services revenue reflects sales of Internet services, including MPLS, VoIP, SIP, and managed services bundled with IP-based data access. IP-based data services decreased $69 million , or 5% , for the Successor year ended March 31, 2016 compared to the Successor year ended March 31, 2015 primarily due to fewer IP customers. In addition, revenue was also impacted by a decline in prices for the sale of services to our Wireless segment. Sale of services to our Wireless segment represented 15% of total Internet revenues for the Successor year ended March 31, 2016 compared to 12% in the year ended March 31, 2015 .

Other Revenues

Other revenues, which primarily consist of sales of customer premises equipment, increased $13 million , or 18% , for the Successor year ended March 31, 2016 compared to the Successor year ended March 31, 2015 .

Successor Year Ended March 31, 2015 and Successor Year Ended December 31, 2013

Voice Revenues

Voice revenues for the Successor year ended March 31, 2015 increased $455 million , or 63% , compared to the Successor year ended December 31, 2013 . The increase was primarily due to comparing results for a full twelve-month period to a shortened Post-merger period. Offsetting the increase were decreases driven by lower volume and overall rate declines, primarily due to the decline in prices for the sale of services to our Wireless segment, combined with decreases in international hubbing volumes, which resulted in an overall decrease in voice revenues when comparing the Successor year ended March 31, 2015 to the Combined year ended December 31, 2013. Voice revenues generated from the sale of services to


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our Wireless segment represented 31% of total voice revenues for the Successor year ended March 31, 2015 compared to 33% in the Successor year ended December 31, 2013 .

Data Revenues

Data revenues reflect sales of data services, primarily Private Line and managed network services bundled with non-IP-based data access. Data revenues increased $75 million , or 54% , for the Successor year ended March 31, 2015 compared to the Successor year ended December 31, 2013 primarily due to comparing results for a full twelve-month period to a shortened Post-merger period. Offsetting the increase was a decrease as a result of customer churn, primarily related to Private Line, which resulted in an overall decrease in data revenues when comparing the Successor year ended March 31, 2015 to the Combined year ended December 31, 2013. Data revenues generated from the provision of services to the Wireless segment represented 41% of total data revenue for each of the Successor year ended March 31, 2015 compared to 50% in the Successor year ended December 31, 2013 .

Internet Revenue

IP-based data services revenue reflects sales of Internet services, including MPLS, VoIP, SIP, and managed services bundled with IP-based data access. IP-based data services increased $606 million , or 81% , for the Successor year ended March 31, 2015 compared to the year ended December 31, 2013 primarily due to comparing results for a full twelve-month period to a shortened Post-merger period. Offsetting the increase was a decrease primarily due to fewer IP customers, and in particular, the final transition to in-sourcing at one of our larger cable multiple system operators ( MSO's), which resulted in an overall decrease in Internet revenues when comparing the Successor year ended March 31, 2015 to the Combined year ended December 31, 2013. In addition, revenue was also impacted by a decline in the price of services sold to our Wireless segment and the elimination of backhaul associated with the decommissioning of the Nextel platform as of June 30, 2013. Sale of services to our Wireless segment represented 12% of total Internet revenues for the Successor year ended March 31, 2015 compared to 11% in the year ended December 31, 2013 .

Other Revenues

Other revenues, which primarily consist of sales of customer premises equipment, increased $42 million , or 131% , for the Successor year ended March 31, 2015 compared to the year ended December 31, 2013 primarily due to comparing results for a full twelve-month period to a shortened Post-merger period.

Successor Three-Month Transition Period Ended March 31, 2014 and Predecessor Three-Month Period Ended March 31, 2013

Voice Revenues

Voice revenues remained flat for the Successor three-month transition period ended March 31, 2014 compared to the same Predecessor period in 2013 . Overall rate declines were primarily due to the decline in prices for the sale of services to our Wireless segment which were offset by increases in international hubbing volumes in the three-month transition period ended March 31, 2014 . Voice revenues generated from the sale of services to our Wireless segment represented 25% of total voice revenues for the Successor three-month transition period ended March 31, 2014 compared to 28% for the Predecessor three-month period ended March 31, 2013 .

Data Revenues

Data revenues reflect sales of data services, primarily Private Line and managed network services bundled with non-IP-based data access. Data revenues decreased $32 million , or 34% , for the Successor three-month transition period ended March 31, 2014 compared to the same Predecessor period in 2013 as a result of customer churn, primarily related to Private Line. Data revenues generated from the provision of services to the Wireless segment represented 42% of total data revenue for the Successor three-month transition period ended March 31, 2014 compared to 49% for the Predecessor three-month period ended March 31, 2013 .

Internet Revenue

IP-based data services revenue reflects sales of Internet services, including MPLS, VoIP, SIP, and managed services bundled with IP-based data access. IP-based data services decreased $89 million , or 21% , for the Successor three-month transition period ended March 31, 2014 compared to the same Predecessor period in 2013 , primarily due to fewer IP customers, and in particular, the final transition to in-sourcing of one of our larger cable MSO's. Sale of services to our Wireless segment represented 11% of total Internet revenues in both the Successor three-month transition period ended March 31, 2014 and the Predecessor three-month period ended March 31, 2013 .


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Other Revenues

Other revenues, which primarily consist of sales of customer premises equipment, decreased $2 million , or 15% , in the Successor three-month transition period ended March 31, 2014 compared to the same Predecessor period in 2013 .

Costs of Services

Costs of services include access costs paid to local phone companies, other domestic service providers and foreign phone companies to complete calls made by our domestic subscribers, costs to operate and maintain our networks, and costs of equipment.

Successor Year Ended March 31, 2016 and Successor Year Ended March 31, 2015

Costs of services decreased $376 million , or 16% , for the Successor year ended March 31, 2016 compared to the Successor year ended March 31, 2015 primarily due to lower international voice volume and rates combined with lower access expense as the result of savings initiatives and declining voice and IP rate and volumes. Service gross margin percentage increased from 17% in the Successor year ended March 31, 2015 to 18% in the Successor year ended March 31, 2016 .

Successor Year Ended March 31, 2015 and Successor Year Ended December 31, 2013

Costs of services increased $1.1 billion , or 89% , for the Successor year ended March 31, 2015 compared to the Successor year ended December 31, 2013 primarily due to comparing results for a full twelve-month period to a shortened Post-merger period. Offsetting the increase was a decrease primarily due to lower access expense as a result of savings initiatives and declining volumes, which resulted in an overall decrease in cost of services when comparing the Successor year ended March 31, 2015 to the Combined year ended December 31, 2013. Service gross margin percentage decreased from 25% in the Successor year ended December 31, 2013 to 17% in the Successor year ended March 31, 2015 primarily as a result of a decrease in net service revenue partially offset by a decrease in cost of services.

Successor Three-Month Transition Period Ended March 31, 2014 and Predecessor Three-Month Period Ended March 31, 2013

Costs of services increased $7 million , or 1% , in the Successor three-month transition period ended March 31, 2014 compared to the same Predecessor period in 2013 primarily due to higher contractual rates impacting facility costs. Service gross margin percentage decreased from 26% in the Predecessor three-month period ended March 31, 2013 to 13% in the Successor three-month transition period ended March 31, 2014 primarily as a result of a decrease in net service revenue combined with a slight increase in cost of services.

Selling, General and Administrative Expense

Successor Year Ended March 31, 2016 and Successor Year Ended March 31, 2015

Selling, general and administrative expense decreased $35 million , or 10% , in the Successor year ended March 31, 2016 compared to the Successor year ended March 31, 2015 primarily due to a decrease in shared administrative and employee-related costs required to support the Wireline segment as a result of the decline in revenue. Total selling, general and administrative expense as a percentage of net services revenue was 14% in the Successor year ended March 31, 2016 compared to 13% in the Successor year ended March 31, 2015 .

Successor Year Ended March 31, 2015 and Successor Year Ended December 31, 2013

Selling, general and administrative expense increased $184 million , or 103% , in the Successor year ended March 31, 2015 compared to the Successor year ended December 31, 2013 primarily due to comparing results for a full twelve-month period to a shortened Post-merger period, partially offset by a decrease due to a reduction in shared administrative and employee-related costs required to support the Wireline segment as a result of the decline in revenue, which resulted in an overall decrease in selling, general and administrative expense when comparing the Successor year ended March 31, 2015 to the Combined year ended December 31, 2013. Total selling, general and administrative expense as a percentage of net services revenue was 13% in the Successor year ended March 31, 2015 compared to 11% in the Successor year ended December 31, 2013 .

Successor Three-Month Transition Period Ended March 31, 2014 and Predecessor Three-Month Period Ended March 31, 2013

Selling, general and administrative expense decreased $14 million , or 13% , in the Successor three-month transition period ended March 31, 2014 compared to the same Predecessor period in 2013 . The decrease was primarily due to a reduction in shared administrative and employee related costs required to support the Wireline segment as a result of the


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decline in revenue. Total selling, general and administrative expense as a percentage of net services revenue was 12% in each of the three-month periods ended March 31, 2014 (Successor) and 2013 (Predecessor).


LIQUIDITY AND CAPITAL RESOURCES

Cash Flow

Successor

Combined

Successor

Predecessor

Year Ended
March 31,

Year Ended
March 31,

Three Months Ended
March 31,

Year Ended
December 31,

Year Ended
December 31,

191 Days Ended

July 10,

Three Months Ended
March 31,

2016

2015

2014

2013

2013

2013

2013

(in millions)

Net cash provided by (used in) operating activities

$

3,897


$

2,450


$

522


$

2,610


$

(61

)

$

2,671


$

940


Net cash used in investing activities

$

(5,735

)

$

(4,714

)

$

(1,756

)

$

(24,493

)

$

(18,108

)

$

(6,385

)

$

(1,158

)

Net cash provided by (used in) financing activities

$

469


$

1,304


$

(160

)

$

24,419


$

24,528


$

(109

)

$

142


Operating Activities

Net cash provided by operating activities of approximately $3.9 billion in the Successor year ended March 31, 2016 increased $1.4 billion from the same period in 2015 . This increase was due to lower vendor and labor-related payments of $2.2 billion which were primarily due to reduced operating costs partially offset by reduced cash received from customers of $669 million. The reduction in cash received from customers was driven by the $2.4 billion decrease in net operating revenues primarily due to lower average revenue per subscriber, which was offset by the $1.5 billion increase in operating cash flows resulting from the net changes in accounts and notes receivables and Deferred Purchase Price (DPP) during the Successor year ended March 31, 2016 compared to the same period in 2015. In addition, we had increased interest payments of $125 million primarily associated with $1.5 billion aggregate principal amount of notes issued in February 2015.

The activities under our Receivables Facility impact the cash flows from both accounts and notes receivables and DPP. During the Successor year ended March 31, 2016, the total cash inflows from the DPP were $2.5 billion. Approximately $1.2 billion of the cash inflows represented the settlement of the DPP associated with the sale of service receivables on March 31, 2015, which occurred after we temporarily suspended the sale of new receivables in April 2016. In September and October 2016, we began selling both service and installment receivables, respectively. The DPP associated with these initial non-cash transactions amounted to $2.4 billion. Approximately $825 million of the cash inflows represented cash advances that we elected to draw against the DPP during the year. Under the Receivables Facility, as cash collections on previously sold receivables exceed the sales of new receivables, we retain these amounts and apply them against the DPP. During the successor year ended March 31, 2016, the DPP was reduced for these cash collections totaling approximately $400 million.

Net cash provided by operating activities of approximately $2.5 billion in the Successor year ended March 31, 2015 increased $2.5 billion from the Successor year ended December 31, 2013 . The increase was primarily due to comparing a full twelve-month period to a shortened Post-merger period. The Successor year ended December 31, 2013 included $180 million of call redemption premiums paid to retire the Clearwire debt and approximately $225 million of interest payments related to Clearwire debt. Net cash provided by operating activities of approximately $2.5 billion in the Successor year ended March 31, 2015 decreased $160 million as compared to net cash provided by operating activities of approximately $2.6 billion for the year ended December 31, 2013 , on a combined basis. The decrease was due to decreased cash received from customers of $1.1 billion primarily as a result of increases in installment billing receivables offset by declines due to the sales of receivables through our receivables facility (see Accounts Receivables Facility below) as well as declines in net operating revenues and increased interest payments of $505 million primarily related to the debt issued in September 2013 and December 2013. The decrease was partially offset by lower vendor and labor-related payments of $1.4 billion, which were primarily due to (i) decreased backhaul payments related to the shut-down of the Nextel platform in June 2013, (ii) declines in roaming payments due to lower volumes and rates, and (iii) fewer labor-related payments primarily as a result of reductions in force, call center savings due to lower call volumes, and other labor-related initiatives. These lower payments were partially offset by increased cash paid for inventory.

Net cash provided by operating activities of approximately $522 million in the Successor three-month transition period ended March 31, 2014 decreased $418 million from the same Predecessor period in 2013 . The decrease was due to decreased cash received from customers of $365 million primarily as a result of increases in installment billing receivables and


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increased interest payments of $254 million related to the debt issued in September 2013. These decreases were partially offset by decreases in vendor and labor-related payments of $219 million.

Investing Activities

Net cash used in investing activities in the Successor year ended March 31, 2016 increased by approximately $1.0 billion compared to the same period in 2015 , primarily due to increased purchases of $1.7 billion of leased devices from indirect dealers and decreased net proceeds from sales and maturities of short-term investments of $2.7 billion. These increases were partially offset by $1.1 billion of proceeds from MLS under the Handset Sale-Leaseback Tranche 1 transaction, $1.8 billion in decreased purchases of short-term investments and decreased network and other capital expenditures of $742 million.

Net cash used in investing activities in the Successor year ended March 31, 2015 decreased by approximately $13.4 billion compared to the Successor year ended December 31, 2013 , primarily due to increases of approximately $1.4 billion in proceeds from sales and maturities of short-term investments and 2013 increases related to the SoftBank Merger of $14.1 billion, net of cash acquired. These decreases were partially offset by increased capital expenditures of $2.2 billion, which included $582 million of leased devices purchased from indirect channels, and increased purchases of short-term investments of $358 million. In addition, in the Successor year ended March 31, 2015 , we received $95 million in reimbursements of our costs of clearing the H Block spectrum as part of the Report and Order obligations and $315 million of proceeds from sales of assets and FCC licenses of which $290 million was related to the sale of certain FCC licenses .

Net cash used in investing activities in the Successor three-month transition period ended March 31, 2014 increased by approximately $598 million compared to the same Predecessor period in 2013 , primarily due to increased purchases of short-term investments of approximately $100 million, decreased proceeds of approximately $360 million from sales and maturities of short-term investments, and increases in capital expenditures and expenditures relating to FCC licenses of $100 million each. In addition, as part of an amended exchangeable notes agreement we had with Clearwire, they elected to draw $80 million in March 2013. As a result of the Clearwire Acquisition, the exchangeable notes agreement was terminated and no notes remain outstanding.

Financing Activities

Net cash provided by financing activities was $469 million during the Successor year ended March 31, 2016 , which was primarily due to sales of future lease receivables through our receivables facility (see Receivables Facility below) of $600 million and draws of $208 million, $266 million and $32 million on our Finnvera plc (Finnvera), K-sure and Delcredere | Ducroire (D/D) secured equipment credit facilities, respectively and a $250 million draw on the Export Development Canada (EDC) credit facility. These draws were partially offset by repayments related to our secured equipment credit facilities of $315 million, capital lease repayments of $84 million, and a $500 million repayment of the EDC credit facility.

Net cash provided by financing activities was $1.3 billion during the Successor year ended March 31, 2015 , which was primarily due to the February 24, 2015 issuance of $1.5 billion aggregate principal amount of 7.625% notes due 2025. In addition, we amended our unsecured Export Development Canada (EDC) agreement to, among other things, add an additional tranche totaling $300 million due 2019, which was fully drawn as of March 31, 2015. These were partially offset by principal payments on the iPCS, Inc. Second Lien Secured Floating Rate Notes due 2014 of approximately $181 million and scheduled principal payments on our secured equipment credit facilities of approximately $282 million.

Net cash used in financing activities was $160 million during the Successor three-month transition period ended March 31, 2014 , which was primarily due to principal payments on our secured equipment credit facility of approximately $127 million. Net cash provided by financing activities was $142 million during the Predecessor three-month period ended March 31, 2013, which included net borrowings of approximately $149 million under our secured equipment credit facility.

Net cash provided by financing activities was $24.5 billion during the Successor year ended December 31, 2013, which included proceeds from the issuance of common stock and warrants of approximately $18.6 billion related to the SoftBank Merger. In addition, the Company issued $9.0 billion in debt consisting of a September 11, 2013 issuance of $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, and a December 12, 2013 issuance of $2.5 billion aggregate principal amount of 7.125% notes due 2024, each guaranteed by Sprint Communications. We also incurred approximately $147 million of debt issuance costs. These increases, along with net borrowings under our secured equipment credit facility of approximately $444 million, were offset by the retirement of approximately $3.3 billion principal amount of Clearwire debt.


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Working Capital

We had negative working capital of $5.1 billion and $1.2 billion as of March 31, 2016 and 2015 , respectively. The decline in working capital is due to decreased cash of $1.4 billion primarily due to cash paid for total capital expenditures which was partially offset by net cash provided by operating activities, proceeds from MLS under the Handset Sale-Leaseback Tranche 1 transaction and proceeds from the sale of future lease receivables as part of our Receivables Facility described below. In addition, accounts and notes receivable, net decreased $1.2 billion primarily due to the sale of installment receivables as part of our Receivables Facility described below and device and accessory inventory decreased $186 million. Also contributing to the decline was an increase of $3.4 billion in the current portion of long-term debt, financing and capital lease obligations primarily due to $2.0 billion of Sprint Communications, Inc. 6% Senior notes, $1.0 billion of Sprint Communications, Inc. 9.125% Senior notes and $330 million of proceeds from the sale of future lease receivables all coming due within the next twelve months. These decreases were offset by decreases in accounts payable of $1.4 billion primarily as a result of invoices with extended payment terms with certain network equipment suppliers coming due and timing of purchases and payments associated with device launches. Additionally, accrued expenses and other current liabilities decreased $919 million primarily due to decreased employee accruals and decreased accrued capital expenditures for unbilled services. The remaining balance was due to changes to other working capital items.

Long-Term Debt, Other Funding Sources and Scheduled Maturities

Accounts Receivables Facility

Transaction overview

Our accounts receivable facility (Receivables Facility), which provides us the opportunity to sell certain wireless service and installment receivables (as defined in the agreements) 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 March 31, 2016 , the total availability 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 March 31, 2016 was $94 million . The proceeds from the sale of these receivables are comprised of a combination of cash and a 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 either the ultimate collection of the underlying receivables sold to the Purchasers or upon Sprint's election to receive additional advances in cash from the Purchasers subject to the total availability under the Receivables Facility.

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 operations. The sale of future lease receivables are treated as financing transactions. Accordingly, the proceeds received are reflected as cash provided by financing activities on the consolidated statements of cash flows and the fees are recognized as "Interest expense" on the consolidated statements of operations.

Transaction Structure

Sprint contributes certain 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, future lease 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 repay the advances, 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


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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 operations and other changes in the fair value of the DPP are recognized in "Selling, general and administrative" on the consolidated statements of operations. Changes in the fair value of the DPP did not have a material impact on our statements of comprehensive loss for the year ended March 31, 2016 . Changes to the unobservable inputs used to determine the fair value did not and 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 of $500 million 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 and January 2016, we elected to receive $300 million and $125 million, respectively, of cash, which reduced the total amount of the DPP due to Sprint. During the period from our sale in September to March 31, 2016 , cash collections on previously sold wireless service receivables exceeded sales of new receivables such that the DPP decreased by approximately $207 million . As of March 31, 2016 , the total amount available under the Receivables Facility associated with wireless service receivables was $43 million and the total fair value of the associated DPP was $760 million .

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, which reduced the amount of the DPP due to Sprint. During the period from our initial sale in October to March 31, 2016 , cash collections on previously sold installment receivables exceeded sales of new receivables such that the DPP decreased by approximately $227 million . As of March 31, 2016 , there is no remaining availability under the Receivables Facility associated with installment receivables and the total fair value of the associated DPP was $395 million .

Future Lease Receivable Sales

In February and March 2016, we sold approximately $1.2 billion in total of future lease receivables in exchange for cash proceeds of $600 million . The difference between the amount sold and the cash received represents additional collateral to the lender. The sale was accounted for as a financing and the $600 million cash proceeds were, accordingly, reflected as debt in our consolidated balance sheets. As of March 31, 2016 , the amount available under the Receivables Facility associated with future lease receivables was $51 million .

Handset Sale-Leaseback Tranche 1

In November 2015, Sprint entered into agreements (Handset Sale-Leaseback Tranche 1) 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 operations during the respective lease-back periods.

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


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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 operations. 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. The monthly rental payments for the devices leased back by us will approximate the amount of cash received from the associated customer leases during the weighted average 17 month lease-back period (see Future Contractual Obligations below for expected future rent payments). Rent expense related to MLS totaled $277 million during the year ended March 31, 2016 and is reflected within cash flows from operations.

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, but only to the extent of the device's DPP balance. The DPP associated with the Handset Sale-Leaseback Tranche 1 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 operations. Brightstar, a 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 customer lease is still in effect. Sprint has guaranteed to MLS, the performance of the 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. 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.

Network Equipment Sale-Leaseback

In April 2016, certain wholly-owned subsidiaries of Sprint entered into agreements (Network Equipment Sale-Leaseback) to sell and lease-back certain network equipment to unrelated bankruptcy-remote special purpose entities (collectively, "the Network LeaseCo SPEs"). Sprint sold certain network equipment with a book value of approximately $3.0 billion to the Network LeaseCo SPEs which was used as collateral to raise approximately $2.2 billion in borrowings from external investors, including SoftBank.

The Network LeaseCo SPEs are variable interest entities for which Sprint has been identified as the primary beneficiary. As a result, Sprint is required to consolidate the Network LeaseCo SPEs and intercompany transactions and balances between Network LeaseCo and the wholly-owned Sprint subsidiaries will be eliminated in consolidation. The network assets involved in the transaction, which consisted primarily of equipment located at cell towers, will remain on Sprint's consolidated financial statements and will continue to be depreciated. Principal and interest payments on the borrowings from the external investors will be paid back in staggered, unequal payments through January 2018.

Handset Sale-Leaseback Tranche 2

In April 2016, Sprint entered into a second transaction with MLS (Handset Sale-Leaseback Tranche 2) to sell and lease-back certain iPhone ® devices leased to customers under the iPhone Forever or iPhone for Life programs. In contrast with the first MLS transaction, this sale-leaseback arrangement will be accounted for as a financing transaction. Accordingly, the devices will remain in Property, plant, and equipment, net in the consolidated balance sheets and will continue to be depreciated to their estimated residual values generally over the lease term. The proceeds received will be reflected as cash provided by financing activities on the consolidated statements of cash flows and payments made to MLS will be reflected as principal repayments and interest expense over the respective terms. Future changes in the fair value of the financing obligation will be recognized in earnings over the course of the arrangement.


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Upon closing of the transaction in May 2016, Sprint sold and leased-back approximately $1.3 billion in book value of leased devices for proceeds totaling $1.1 billion (Cash Purchase Price) and a DPP of $186 million , which will be settled at the end of the arrangement and is subject to certain device losses incurred by MLS.

Credit Facilities

Bank Credit Facility

Our revolving bank credit facility that expires in February 2018 requires a 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 revolving bank credit facility (adjusted EBITDA), 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.

Export Development Canada (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 March 31, 2016 , the total principal amount of our borrowings under the EDC facility was $550 million.

New Unsecured Financing Facility

In April 2016, Sprint Communications entered into an unsecured financing facility for $2.0 billion . The terms of this facility provide for covenant terms similar to those of the revolving bank credit facility, however, repayments of outstanding amounts cannot be re-drawn. The loan bears interest at a rate equal to LIBOR plus a percentage that varies depending on the time of draw and matures in October 2017. Any amounts borrowed will be required to be repaid if certain debt or equity securities are issued or certain asset sales occur, as set forth more specifically in the agreement. As of May 17, 2016 , no amounts had been drawn on this facility.

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 $254 million during the year ended March 31, 2016 . The balance outstanding at March 31, 2016 was $254 million .

Finnvera plc (Finnvera)

The Finnvera secured equipment credit facility provides for 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 year ended March 31, 2016 , we had drawn $208 million on the facility, and we made principal repayments totaling $56 million , resulting in a total principal amount of $196 million outstanding at March 31, 2016 .

K-sure

The K-Sure secured 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 year ended March 31, 2016 , we had drawn $266 million on the facility, resulting in a total principal amount of $323 million outstanding at March 31, 2016 .


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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 year ended March 31, 2016 , we had drawn $32 million on the facility, resulting in a total principal amount of $32 million outstanding at March 31, 2016 .

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 of the 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.

As of March 31, 2016 , our Leverage Ratio, as defined by the revolving bank credit facility, EDC Agreement and all other equipment credit facilities was 4.1 to 1.0 . Because our Leverage Ratio exceeded 2.5 to 1.0 at period end, we were restricted from paying cash dividends.

The following graph depicts our future fiscal year repayments due for notes and credit facilities as of March 31, 2016 :

*This table excludes (i) $320 million in letters of credit outstanding under our unsecured revolving bank credit facility, which will expire in 2018 and has no outstanding balance, (ii) all capital leases and other financing obligations, and (iii) net premiums and debt financing costs.

Liquidity and Capital Resources

As of March 31, 2016 , our liquidity, including cash and cash equivalents, short-term investments, available borrowing capacity under our revolving bank credit facility and availability under our Receivables Facility was $5.7 billion . Our cash and cash equivalents and short-term investments totaled $2.6 billion as of March 31, 2016 compared to $4.2 billion as of March 31, 2015 . As of March 31, 2016 , we had approximately $3.0 billion of borrowing capacity available under our revolving bank credit facility. Amounts available under our Receivables facility as of March 31, 2016 totaled $94 million .

In addition, we had a combined available borrowing capacity of $645 million under our K-sure and D/D secured equipment credit facilities as of March 31, 2016 . As of April 1, 2016 up to $520 million of the third tranche under our Finnvera secured equipment credit facility became available. However, utilization of these facilities is dependent upon the amount and timing of network-related purchases from the applicable suppliers, as well as the period of time remaining to complete any further borrowings available under each facility.


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We offer device financing plans, including the installment billing program and our leasing program, that allow subscribers to forgo traditional service contracts and pay less upfront for devices in exchange for lower monthly service fees, early upgrade options, or both. While a majority of the revenue associated with installment sales is recognized at the time of sale along with the related cost of products, lease revenue is recorded monthly over the term of the lease and the cost of the device is depreciated to its estimated residual value generally over the lease term, which creates a positive impact to Wireless segment earnings. If the mix of leased devices continues to increase, we expect this positive impact on the financial results of Wireless segment earnings to continue and depreciation expense to increase. However, this benefit to Wireless segment earnings will be partially offset by the Handset Sale-Leaseback Tranche 1 transaction that was consummated in November 2015 where we sold and subsequently leased back certain devices leased to our customers. As a result, our cost of the devices sold to MLS is no longer recorded as depreciation expense, but rather recognized as rent expense within "Cost of products" during the leaseback periods. The installment billing and leasing programs will continue to require a greater use of operating cash flows in the earlier part of the contracts as the subscriber will generally pay less upfront than traditional subsidized programs because they are financing the device. The Receivables Facility and our relationship with MLS were established as mechanisms to mitigate the use of cash from purchasing devices from OEMs to fulfill our installment billing and leasing programs.

To meet our liquidity requirements, we look to a variety of sources. In addition to our existing cash and cash equivalents, short-term investments, and cash generated from operating activities, we raise funds as necessary from external sources. We rely on the ability to issue debt and equity securities, the ability to access other forms of financing, including debt financing, proceeds from the sale of certain accounts receivable and future lease receivables under our Receivables Facility, proceeds from future sale-leaseback transactions, such as spectrum, devices, and equipment, and the borrowing capacity available under our credit facilities to support our short- and long-term liquidity requirements. In April 2016, we entered into the Network Equipment Sale-Leaseback to sell and lease-back certain network equipment for total cash proceeds of approximately $2.2 billion, the Handset Sale-Leaseback Tranche 2 for total cash proceeds of approximately $1.1 billion, and executed a new unsecured financing facility of $2.0 billion . We believe our existing available liquidity and cash flows from operations will be sufficient to meet our funding requirements over the next twelve months, including debt service requirements and other significant future contractual obligations.

To maintain an adequate amount of available liquidity and execute our current business plan, which includes, among other things, network deployment and maintenance, subscriber growth, data usage capacity needs and the expected achievement of a cost structure intended to improve profitability and to meet our long-term debt service requirements and other significant future contractual obligations, we will need to continue to raise additional funds from external sources. Possible future financing sources include, among others, additional tranches under the Handset Sale-Leaseback to include additional devices, a transaction to monetize certain spectrum holdings, refinancing our debt, or sale-leasebacks of certain real estate. In addition, we are pursuing extended payment terms with certain vendors. If we are unable to obtain external funding, execute on our cost reduction initiatives, or are not successful in attracting valuable subscribers such as postpaid handset (versus tablet) subscribers, our expectation of longer-term benefits from our operations would be adversely affected, which may lead to defaults under certain of our borrowings.

Depending on the amount of any difference in actual results versus what we currently expect, it may make it difficult for us to generate sufficient EBITDA to remain in compliance with our financial covenants or be able to meet our debt service obligations, which could result in acceleration of our indebtedness, or adversely impact our ability to raise additional funding through the sources described above, or both. If such events occur, we may engage with our lenders to obtain appropriate waivers or amendments of our credit facilities or refinance borrowings, or seek funding from other external sources, although there is no assurance we would be successful in any of these actions.

A default under certain of our borrowings could trigger defaults under certain of our other debt obligations, which in turn could result in the maturities being accelerated. Certain indentures and other agreements also require compliance with various covenants, including covenants that limit the Company's ability to sell all or substantially all of its assets, limit the Company and its subsidiaries' ability to incur indebtedness and liens, and require that we maintain certain financial ratios, each as defined by the terms of the indentures, related supplemental indentures and other agreements.


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In determining our expectation of future funding needs in the next twelve months and beyond, we have made several assumptions regarding:

projected revenues and expenses relating to our operations, including those related to our installment billing and leasing programs, along with the success of initiatives such as our expectations of achieving a more competitive cost structure through cost reduction initiatives and increasing our postpaid handset subscriber base;

cash needs related to our installment billing and leasing programs;

availability as of March 31, 2016 of $94 million in funding under the Receivables Facility, which terminates in November 2017;

continued availability of a revolving bank credit facility, which expires in February 2018, in the amount of $3.3 billion, less outstanding letters of credit;

remaining availability of approximately $1.2 billion of our secured equipment credit facilities (inclusive of availability that we were eligible to draw upon beginning April 1, 2016) for eligible capital expenditures, and any corresponding principal, interest and fee payments;

raising additional funds from external sources;

the expected use of cash and cash equivalents in the near-term;

anticipated levels and timing of capital expenditures, including assumptions regarding lower unit costs, the capacity additions and upgrading of our networks and the deployment of new technologies in our networks, FCC license acquisitions, and purchases of leased devices from our indirect dealers;

any additional contributions we may make to our pension plan;

any scheduled principal payments on debt, secured equipment credit facilities and EDC, including approximately $13.2 billion coming due over the next five fiscal years;

estimated residual values of devices related to our device lease program; and

other future contractual obligations and general corporate expenditures.

Our ability to fund our needs from external sources is ultimately affected by the overall capacity of, and financing terms available in the banking and securities markets, and the availability of other financing alternatives, as well as our performance and our credit ratings. Given our recent financial performance as well as the volatility in these markets, we continue to monitor them closely and to take steps to maintain financial flexibility at a reasonable cost of capital.

The outlooks and credit ratings from Moody's Investor Service, Standard & Poor's Ratings Services, and Fitch Ratings for certain of Sprint Corporation's outstanding obligations were:

Rating

Rating Agency

Issuer Rating

Unsecured  Notes

Guaranteed Notes

Bank Credit Facility

Outlook

Moody's

B3

Caa1

B1

Ba3

Negative

Standard and Poor's

B

B

BB-

BB-

Stable

Fitch

B+

B+

BB

BB

Stable



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FUTURE CONTRACTUAL OBLIGATIONS

The following table sets forth our current estimates as to the amounts and timing of contractual payments as of March 31, 2016 . Future events, including additional issuances of our debt securities and refinancing of those debt securities, could cause actual payments to differ significantly from these amounts. See "Item 1A. Risk Factors."

Future Contractual Obligations

Total

Fiscal Year 2016

Fiscal Year 2017

Fiscal Year 2018

Fiscal Year 2019

Fiscal Year 2020

Fiscal Year

2021 and thereafter

(in millions)

Notes, credit facilities and debentures (1)

$

47,998


$

6,577


$

3,769


$

5,133


$

3,799


$

2,547


$

26,173


Capital leases and financing obligation (2)

1,210


551


424


86


56


13


80


Operating leases (3)

14,078


2,195


2,148


2,072


1,958


1,820


3,885


Spectrum leases and service credits (4)

6,707


212


219


221


224


226


5,605


Handset sale-leaseback tranche 1

651


580


71


-


-


-


-


Purchase orders and other commitments (5)

11,224


7,192


1,428


951


499


354


800


Total

$

81,868


$

17,307


$

8,059


$

8,463


$

6,536


$

4,960


$

36,543


________________ 

(1)

Includes outstanding principal and estimated interest payments. Interest payments are based on management's expectations for future interest rates in the case of any variable rate debt.

(2)

Represents capital lease payments including interest and financing obligation related to the sale and subsequent leaseback of multiple tower sites.

(3)

Includes future lease payments related to cell and switch sites, real estate, network equipment and office space.

(4)

Includes future spectrum lease payments as well as service credits related to commitments to provide services to certain lessors and reimburse lessors for certain capital equipment and third-party service expenditures, over the term of the lease.

(5)

Includes service, spectrum, network equipment, devices, asset retirement obligations and other executory contracts, including our contract with Apple. Excludes blanket purchase orders in the amount of $24 million . See below for further discussion.

"Purchase orders and other commitments" include minimum purchases we commit to purchase from suppliers over time and/or the unconditional purchase obligations where we guarantee to make a minimum payment to suppliers for goods and services regardless of whether we take delivery. These amounts do not represent our entire anticipated purchases in the future, but generally represent only our estimate of those items for which we are committed. Our estimates are based on assumptions about the variable components of the contracts such as hours contracted, number of subscribers, pricing, and other factors. In addition, we are party to various arrangements that are conditional in nature and create an obligation to make payments only upon the occurrence of certain events, such as the delivery of functioning software or products. Because it is not possible to predict the timing or amounts that may be due under these conditional arrangements, no such amounts have been included in the table above. The table above also excludes approximately $24 million of blanket purchase order amounts since their agreement terms are not specified. No time frame is set for these purchase orders and they are not legally binding. As a result, they are not firm commitments. Our liability for uncertain tax positions was $166 million as of March 31, 2016 . Due to the inherent uncertainty of the timing of the resolution of the underlying tax positions, it is not practicable to assign this liability to any particular year(s) in the table.

The table above does not include the remaining costs to be paid in connection with the fulfillment of our obligations under the Report and Order. The Report and Order requires us to make a payment to the U.S. Treasury at the conclusion of the band reconfiguration process to the extent that the value of the 1.9 GHz spectrum we received exceeds the total of the value of licenses for spectrum in the 700 MHz and 800 MHz bands that we surrendered under the decision plus the actual costs, or qualifying costs, that we incur to retune incumbents and our own facilities. From the inception of the program through March 31, 2016 , we have incurred approximately $3.5 billion of costs directly attributable to the spectrum reconfiguration program. This amount does not include any of our internal network costs that we have preliminarily allocated to the reconfiguration program for capacity sites and modifications for which we may request credit under the reconfiguration program. We estimate, based on our experience to date with the reconfiguration program and on information currently available, that our total direct costs attributable to complete the spectrum reconfigurations will range between $3.6 and $3.7 billion. Accordingly, we believe that it is unlikely that we will be required to make a payment to the U.S. Treasury.



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OFF-BALANCE SHEET FINANCING

Sprint has an accounts Receivable Facility providing for the sale of eligible wireless service, installment and certain future lease receivables, with a maximum funding limit of $4.3 billion and an expiration date of November 2017. For the period ended March 31, 2016 , we received $1.3 billion in cash proceeds. In connection with the Receivables Facility, Sprint formed certain wholly-owned consolidated bankruptcy-remote SPEs. At Sprint's direction, the SPEs sell wireless service, installment and future lease receivables to unaffiliated third parties or to a bank agent. Sales of eligible receivables generally occur daily and are settled on a monthly basis. Sprint pays a fee for the drawn and undrawn portions of the Receivables Facility.

In November, 2015, Sprint also entered into a Handset Sale-Leaseback Tranche 1 agreement to sell and lease-back certain leased devices with MLS. In connection with the Handset Sale-Leaseback Tranche 1, Sprint formed certain wholly-owned consolidated bankruptcy-remote SPE Lessees. The SPE Lessees then sold the devices and transferred certain specified customer lease end rights and obligations to MLS in exchange for proceeds totaling $1.1 billion and a DPP of $126 million in December 2015. See the detailed Accounts Receivables Facility and Handset Sale-Leaseback Tranche 1 discussions within Liquidity and Capital Resources above.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Sprint applies those accounting policies that management believes best reflect the underlying business and economic events, consistent with U.S. GAAP. Sprint's more critical accounting policies include allowance for doubtful accounts, estimated economic lives and residual values of property, plant and equipment, valuation and recoverability of long-lived assets, evaluation of goodwill and indefinite-lived assets for impairment and valuation of guarantee liabilities. Inherent in such policies are certain key assumptions and estimates made by management. Management regularly updates its estimates used in the preparation of the financial statements based on its latest assessment of the current and projected business and general economic environment. Sprint's significant accounting policies and estimates are summarized in the Notes to the Consolidated Financial Statements.

Depreciation

Our property, plant and equipment balance represents a significant component of our consolidated assets. We record property, plant and equipment at cost and generally depreciate it on a straight-line basis over the estimated useful life of the assets. We expect that a one-year increase in estimated useful lives of our property, plant and equipment, exclusive of leased devices, would result in a decrease to our fiscal year 2016 depreciation expense of $800 million and that a one-year decrease would result in an increase of approximately $1.2 billion in our fiscal year 2016 depreciation expense.

Leased Devices

Our accounting for device leases involves specific determinations under applicable lease accounting standards. These determinations affect the timing of revenue recognition and the timing and classification of the related cost of the device. If a lease is classified as an operating lease, revenue is recognized ratably over the lease term and the leased asset is included in property, plant and equipment and depreciated to its estimated residual value generally over the lease term. If the lease is classified as a sales-type lease, equipment revenue is recognized at the inception of the lease with a corresponding charge to cost of product. If the lease is classified as a direct-financing lease, there is no related revenue or cost of products recorded and the net investment in a leased asset is reported. The critical elements that we consider in determining the classification of our leased devices are the economic life and the fair value of the device, including the estimated residual value. For the purposes of assessing the economic life of a device, we consider both internal and external datasets including, but not limited to, the length of time subscribers use our devices, sales trends post launch, and transactions in the secondary market as there is currently a significant after-market for used telecommunication devices.

At lease inception, the devices are classified as operating leases and are reclassified from inventory to property, plant and equipment when leased through Sprint's direct channels. For those devices leased through indirect channels, we purchase the devices at lease inception from the dealer, which is then capitalized to property, plant and equipment. Residual values associated with devices under operating leases represent the estimated fair value at the end of the lease term. We review residual values regularly and, when appropriate, adjust them based on, among other things, estimates of expected market conditions at the end of the lease, including the impacts of future product launches. Adjustments to residual values of leased devices are recognized as a revision in depreciation estimates. We estimate that a 10% increase or decrease in the estimated residual values of devices currently under operating leases at March 31, 2016 would not have a material effect on depreciation expense over the next twelve months.


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Valuation and Recoverability of Long-lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of a long-lived asset or asset group is not recoverable and exceeds its fair value. Long-lived asset groups have been determined based upon certain factors including assessing the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Impairment analyses, when performed, are based on our current business and technology strategy, views of growth rates for our business, anticipated future economic and regulatory conditions and expected technological availability.

During the year ended March 31, 2016 , no impairments were recorded. During the three-month period ended December 31, 2014, we recorded an impairment loss of $233 million, which is included in "Impairments" in our consolidated statements of operations, to reduce the carrying value of the Wireline asset group, which includes the Wireline long-lived assets, to its estimated fair value as of our testing date of $918 million. The fair value of the Wireline long-lived assets was estimated using a market approach, which included significant unobservable inputs including liquidation curves, useful life assumptions, and scrap values. As the assumptions are largely unobservable, the estimate of fair value is considered to be unobservable within the fair value hierarchy.

The determination of fair value requires judgment and is sensitive to changes in underlying assumptions. While we believe our judgments and assumptions are reasonable, changes in future periods may impact our assumptions and lead to additional, future impairments.

Evaluation of Goodwill and Indefinite-Lived Intangible Assets for Impairment

As a result of the SoftBank Merger in July 2013, we recognized indefinite-lived assets at their acquisition-date estimates of fair value, including FCC licenses, goodwill, and trade names. All of the indefinite-lived assets, including goodwill, were allocated to our Wireless segment. As of March 31, 2015 and 2016, the carrying values of these assets were $36.0 billion, $6.6 billion and $4.0 billion, respectively.

Sprint evaluates the carrying value of our indefinite-lived assets, including goodwill, at least annually or more frequently whenever events or changes in circumstances 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. During the quarter-ended March 31, 2016 , the Company completed its annual impairment testing for Goodwill, the Sprint and Boost trade names, and spectrum licenses. As a result of our testing, we determined that the fair value of each of our indefinite-lived intangible assets exceeded their carrying values.

In performing the goodwill impairment test, we estimated the fair value of the Wireless reporting unit using income-based, market-based and asset-based valuation models. The determination of the fair value of the reporting unit requires significant estimates and assumptions, including significant unobservable inputs. The key inputs included, but were not limited to, discount rates, terminal growth rates, control premiums, market multiple data from selected guideline public companies, management's internal forecasts which include numerous assumptions such as share of industry gross additions, churn, mix of plans, rate changes, operating and capital expenditures and EBITDA margins, among others. Changes in certain assumptions or management's failure to execute on the current plan could have a significant impact to the estimated fair value of the Wireless reporting unit. Under the income-based approach, we note that our fair value cushion is in excess of 10% of the carrying value.

We estimated the fair value of the Sprint and Boost trade names assigned to the Wireless segment using the relief-from-royalty method, which uses several significant assumptions, including management projections of future revenue, a royalty rate, a long-term growth rate and a discount rate. As these assumptions are largely unobservable, the estimate of fair value is considered to be unobservable within the fair value hierarchy. Changes in certain assumptions can have a significant effect on the estimated fair value. For both the Sprint and Boost trade names, we note that a 5% decrease in revenue across the long-term plans would not result in an impairment as of March 31, 2016 .

During the quarter ended 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 determination of fair value requires considerable judgment and is highly sensitive to changes in underlying assumptions and execution of management's plan. Consequently, there can be no assurance that the estimates and assumptions made for the purposes of the goodwill, spectrum and trade name impairment tests will prove to be an accurate


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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.


NEW ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (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. The FASB has subsequently issued additional guidance on several areas including the implementation of principal versus agent considerations and recognition of breakage for certain prepaid stored-value products requiring breakage of these liabilities to be accounted for consistent with the breakage guidance under this revenue standard. They also clarified how an entity should evaluate the nature of its promise in granting an intellectual property license and when a promised good or service is distinct within the context of a contract and allowed entities to disregard goods or services that are immaterial in the context of a contract. Entities are allowed to transition to the new standard by either retrospective application or recognizing the cumulative effect. The Company is currently evaluating the newly issued guidance, including which transition approach will be applied. We expect this guidance to have a material impact on our 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 would have been effective for the Company's fiscal year beginning April 1, 2016, including interim reporting periods within that fiscal year, although early adoption was permitted. The Company has elected to early adopt this guidance effective January 1, 2016. The early adoption of this guidance did not have a material effect on our consolidated financial statements.

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 will be 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 periods within that fiscal year, although early adoption is permitted. The Company is currently evaluating the newly issued guidance and does not expect 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 standard will be effective for the Company's fiscal year beginning April


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1, 2017, including interim periods within that fiscal year. 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 amendments are to be 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, including interim periods within that fiscal year, although early adoption is permitted for financial statements that have not been issued, and will be applied, as necessary, to future business combinations.

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.

In February 2016, the FASB issued authoritative guidance regarding Leases. The new standard will supersede much of the existing authoritative literature for leases. This guidance requires lessees, among other things, to recognize right-of-use assets and liabilities on their balance sheet for all leases with lease terms longer than twelve months. The standard will be effective for the Company for its fiscal year beginning April 1, 2019, including interim periods within that fiscal year with early application permitted. Entities are required to use modified retrospective application for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements with the option to elect certain transition reliefs. The Company is currently evaluating the guidance and we expect it to have a material impact on our consolidated financial statements, however we are still assessing the overall impact.


FINANCIAL STRATEGIES

General Risk Management Policies

Our board of directors has adopted a financial risk management policy that authorizes us to enter into derivative transactions, and all transactions comply with the policy. We do not purchase or hold any derivative financial instruments for speculative purposes with the exception of equity rights obtained in connection with commercial agreements or strategic investments, usually in the form of warrants to purchase common shares.

Derivative instruments are primarily used for hedging and risk management purposes. Hedging activities may be done for various purposes, including, but not limited to, mitigating the risks associated with an asset, liability, committed transaction or probable forecasted transaction. We seek to minimize counterparty credit risk through credit approval and review processes, credit support agreements, continual review and monitoring of all counterparties, and thorough legal review of contracts. Exposure to market risk is controlled by regularly monitoring changes in hedge positions under normal and stress conditions to ensure they do not exceed established limits.


OTHER INFORMATION

We routinely post important information on our website at www.sprint.com/investors . Information contained on or accessible through our website is not part of this annual report.


FORWARD-LOOKING STATEMENTS

We include certain estimates, projections and other forward-looking statements in our annual, quarterly and current reports, and in other publicly available material. Statements regarding expectations, including performance assumptions and estimates relating to capital requirements, as well as other statements that are not historical facts, are forward-looking statements.


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These statements reflect management's judgments based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. With respect to these forward-looking statements, management has made assumptions regarding, among other things, subscriber and network usage, subscriber growth and retention, technologies, products and services, pricing, operating costs, the timing of various events, and the economic and regulatory environment.

Future performance cannot be assured. Actual results may differ materially from those in the forward-looking statements. Some factors that could cause actual results to differ include:

our ability to obtain additional financing, including monetizing certain of our assets, including a portion of our network or spectrum holdings, or to modify the terms of our existing financing, on terms acceptable to us, or at all;

our ability to continue to receive the expected benefits of the Handset Sale-Leasebacks, including any additional future tranches;

our ability to retain and attract subscribers and to manage credit risks associated with our subscribers;

the ability of our competitors to offer products and services at lower prices due to lower cost structures or otherwise;

the effective implementation of our plans to improve the quality of our network, including timing, execution, technologies, costs, and performance of our network;

failure to improve subscriber churn, bad debt expense, accelerated cash use, costs and write-offs, including with respect to changes in expected residual values related to any of our service plans, including installment billing and leasing programs;

the ability to generate sufficient cash flow to fully implement our plans to improve and enhance the quality of our network and service plans, improve our operating margins, implement our business strategies, and provide competitive new technologies;

the effects of vigorous competition on a highly penetrated market, including the impact of competition on the prices we are able to charge subscribers for services and devices we provide and on the geographic areas served by our network;

the impact of installment billing and leasing handsets; the impact of increased purchase commitments; the overall demand for our service plans, including the impact of decisions of new or existing subscribers between our service offerings; and the impact of new, emerging, and competing technologies on our business;

our ability to provide the desired mix of integrated services to our subscribers;

our ability to continue to access our spectrum and acquire additional spectrum capacity;

changes in available technology and the effects of such changes, including product substitutions and deployment costs and performance;

volatility in the trading price of our common stock, current economic conditions, and our ability to access capital, including debt or equity;

the impact of various parties not meeting our business requirements, including a significant adverse change in the ability or willingness of such parties to provide service and products, including distribution, or infrastructure equipment for our network;

the costs and business risks associated with providing new services and entering new geographic markets;

the effects of any future merger or acquisition involving us, as well as the effect of mergers, acquisitions, and consolidations, and new entrants in the communications industry, and unexpected announcements or developments from others in our industry;

our ability to comply with restrictions imposed by the U.S. Government as a condition to our merger with SoftBank;

the effects of any material impairment of our goodwill or other indefinite-lived intangible assets;

the impacts of new accounting standards or changes to existing standards that the FASB or other regulatory agencies issue, including the Securities and Exchange Commission;

unexpected results of litigation filed against us or our suppliers or vendors;


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the costs or potential customer impact of compliance with regulatory mandates including, but not limited to, compliance with the FCC's Report and Order to reconfigure the 800 MHz band and government regulation regarding "net neutrality";

equipment failure, natural disasters, terrorist acts or breaches of network or information technology security;

one or more of the markets in which we compete being impacted by changes in political, economic, or other factors such as monetary policy, legal and regulatory changes, or other external factors over which we have no control;

the impact of being a "controlled company" exempt from many corporate governance requirements of the NYSE; and

other risks referenced from time to time in this report and other filings of ours with the SEC.

The words "may," "could," "should," "estimate," "project," "forecast," "intend," "expect," "anticipate," "believe," "target," "plan" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are found throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this report. Readers are cautioned that other factors, although not listed above, could also materially affect our future performance and operating results. The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this report. We are not obligated to publicly release any revisions to forward-looking statements to reflect events after the date of this report, including unforeseen events.


Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

We are primarily exposed to the market risk associated with unfavorable movements in interest rates, foreign currencies, and equity prices. The risk inherent in our market risk sensitive instruments and positions is the potential loss arising from adverse changes in those factors.

Interest Rate Risk

The communications industry is a capital-intensive, technology-driven business. We are subject to interest rate risk primarily associated with our borrowings. Interest rate risk is the risk that changes in interest rates could adversely affect earnings and cash flows. Specific interest rate risk includes: the risk of increasing interest rates on variable rate debt and the risk of increasing interest rates for planned new fixed rate long-term financings or refinancings.

Approximately 83% of our debt as of March 31, 2016 was fixed-rate debt. While changes in interest rates impact the fair value of this debt, there is no impact to earnings and cash flows because we intend to hold these obligations to maturity unless market and other conditions are favorable.

We perform interest rate sensitivity analyses on our variable rate debt. These analyses indicate that a one percentage point change in interest rates would have had an annual pre-tax impact of $26 million on our consolidated statements of operations and cash flows for the Successor year ended March 31, 2016 . We also perform a sensitivity analysis on the fair market value of our outstanding debt. A 10% decline in market interest rates is estimated to result in a $1.2 billion increase in the fair market value of our debt to $29.9 billion.

Foreign Currency Risk

We may enter into forward contracts and options in foreign currencies to reduce the impact of changes in foreign exchange rates. Our foreign exchange risk management program focuses on reducing transaction exposure to optimize consolidated cash flow. We use foreign currency derivatives to hedge our foreign currency exposure related to settlement of international telecommunications access charges and the operation of our international subsidiaries. The dollar equivalent of our net foreign currency receivables from international settlements was approximately $3 million and the net foreign currency receivables from international operations was approximately $2 million as of March 31, 2016 . The potential immediate pre-tax loss to us that would result from a hypothetical 10% change in foreign currency exchange rates based on these positions would be less than $1 million.


Item 8.

Financial Statements and Supplementary Data

The consolidated financial statements required by this item begin on page F-1 of this annual report on Form 10-K and are incorporated herein by reference. The financial statements of Clearwire up through the date of acquisition, as required under Regulation S-X, are included in Item 15 of this annual report on Form 10-K and incorporated herein by reference.



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Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.


Item 9A.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports under the Securities Exchange Act of 1934 (Exchange Act), such as this annual report on Form 10-K, is reported in accordance with the SEC's rules. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

In connection with the preparation of this annual report on Form 10-K, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of the disclosure controls and procedures were effective as of March 31, 2016 in providing reasonable assurance that information required to be disclosed in reports we file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and in providing reasonable assurance that the information is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms.

Internal controls over our financial reporting continue to be updated as necessary to accommodate modifications to our business processes and accounting procedures. There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes.

Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of March 31, 2016 . This assessment was based on the criteria set forth by Internal Control-Integrated Framework , issued in 2013 by the Committee of Sponsoring Organizations. Management believes that, as of March 31, 2016 , our internal control over financial reporting was effective.

Our independent registered public accounting firm has issued a report on the effectiveness of our internal control over financial reporting. This report appears on page F-2.



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Item 9B.

Other Information

Disclosure of Iranian Activities under Section 13(r) of the Exchange Act

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act . Section 13(r) requires an issuer to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, including, among other matters, transactions or dealings relating to the government of Iran. Disclosure is required even where the activities, transactions or dealings are conducted outside the U.S. by non-U.S. affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S. law.

After the SoftBank Merger, SoftBank acquired control of Sprint. During the fiscal year ended March 31, 2016 , SoftBank, through one of its non-U.S. subsidiaries, provided roaming services in Iran through Telecommunications Services Company (MTN Irancell), which is or may be a government-controlled entity. During the fiscal year ended March 31, 2016 , SoftBank had no gross revenues from such services and no net profit was generated. This subsidiary also provided telecommunications services in the ordinary course of business to accounts affiliated with the Embassy of Iran in Japan. During the fiscal year ended March 31, 2016 , SoftBank estimates that gross revenues and net profit generated by such services were both under $6,000. Sprint was not involved in, and did not receive any revenue from, any of these activities. These activities have been conducted in accordance with applicable laws and regulations, and they are not sanctionable under U.S. or Japanese law. Accordingly, with respect to Telecommunications Services Company (MTN Irancell), the relevant SoftBank subsidiary intends to continue such activities. With respect services provided to accounts affiliated with the Embassy of Iran in Japan, the relevant SoftBank subsidiary is obligated under contract to continue such services.


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PART III



Item 10.

Directors, Executive Officers and Corporate Governance

The information required by this item regarding our directors is incorporated by reference to the information set forth under the captions "Proposal 1. - Election of Directors" "Board Operations-Board Committees" in our proxy statement relating to our 2016 annual meeting of stockholders, which will be filed with the SEC, and with respect to family relationships, to Part I of this annual report under "Executive Officers of the Registrant." The information required by this item regarding our executive officers is incorporated by reference to Part I of this annual report under the caption titled "Executive Officers of the Registrant." The information required by this item regarding compliance with Section 16(a) of the Exchange Act by our directors, executive officers and holders of ten percent of a registered class of our equity securities is incorporated by reference to the information set forth under the caption "Security Ownership-Section 16(a) Beneficial Ownership Reporting Compliance" in our proxy statement relating to our 2016 annual meeting of stockholders, which will be filed with the SEC.

We have adopted the Sprint Corporation Code of Conduct, which applies to all of our directors, officers and employees. The Code of Conduct is publicly available on our website at http://www.sprint.com/governance . If we make any amendment to our Code of Conduct, other than a technical, administrative or non-substantive amendment, or if we grant any waiver, including any implicit waiver, from a provision of the Code of Conduct that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, we will disclose the nature of the amendment or waiver on our website at the same location. Also, we may elect to disclose the amendment or waiver in a current report on Form 8-K filed with the SEC.


Item 11.

Executive Compensation

The information required by this item regarding compensation of executive officers and directors is incorporated by reference to the information set forth under the captions "Director Compensation," "Executive Compensation," and "Board Operations-Compensation Committee Interlocks and Insider Participation" in our proxy statement relating to our 2016 annual meeting of stockholders, which will be filed with the SEC.


Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item, other than the equity compensation plan information presented below, is incorporated by reference to the information set forth under the captions "Security Ownership-Security Ownership of Certain Beneficial Owners" and "Security Ownership-Security Ownership of Directors and Executive Officers" in our proxy statement relating to our 2016 annual meeting of stockholders, which will be filed with the SEC.

Compensation Plan Information

Currently we sponsor two active equity incentive plans, the 2015 Omnibus Incentive Plan (2015 Plan) and our Employee Stock Purchase Plan (ESPP). We also sponsor the 2007 Omnibus Incentive Plan (2007 Plan) and the 1997 Long-Term Incentive Program (1997 Program). All outstanding options under the Nextel Incentive Equity Plan (Nextel Plan) expired in fiscal year 2015. Under the 2015 Plan, we may grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and other equity-based and cash awards to our employees, outside directors and certain other service providers. Our board of directors, or one or more committees, will determine the terms of each award. No new grants can be made under the 2007 Plan or the 1997 Program.


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The following table provides information about the shares of common stock that may be issued upon exercise of awards as of March 31, 2016 .

Plan Category

Number of Securities

To be Issued

Upon Exercise of

Outstanding Options,

Warrants and Rights

Weighted Average

Exercise Price of

Outstanding Options,

Warrants and

Rights

Number of Securities

Remaining Available for

Future Issuance Under

Equity Compensation Plans

(Excluding Securities

Reflected in Column (a)

(a)

(b)

(c)

Equity compensation plans approved by stockholders of common stock

77,942,352


(1)(2)

$4.69

(3)

132,820,958


(4)(5)(6)

_______________

(1)

Includes 1,095,800 shares covered by options and 22,392,399 restricted stock units under the 2015 Plan, 39,553,456 shares covered by options and 14,120,829 restricted stock units under the 2007 Plan, and 93,290 shares covered by options and 25,835 restricted stock units outstanding under the 1997 Program. Also includes purchase rights to acquire 660,743  shares of common stock accrued at March 31, 2016 under the ESPP. Under the ESPP, each eligible employee may purchase common stock at quarterly intervals at a purchase price per share equal to 95% of the market value on the last business day of the offering period.

(2)

Included in the total of 77,942,352 shares are 14,120,829 restricted stock units under the 2007 Plan, which will be counted against the 2007 Plan maximum in a 2.5 to 1 ratio.

(3)

The weighted average exercise price does not take into account the shares of common stock issuable upon vesting of restricted stock units issued under the 1997 Program, the 2007 Plan or the 2015 Plan. These restricted stock units have no exercise price. The weighted average purchase price also does not take into account the 660,743  shares of common stock issuable as a result of the purchase rights accrued under the ESPP; the purchase price of these shares was $3.25 for each share.

(4)

Of these shares, 59,780,369 shares of common stock were available under the 2015 Plan. Through March 31, 2016 , 167,633,354 cumulative shares came from the 2007 Plan, the 1997 Program and predecessor plans, including the Nextel Plan.

(5)

Includes 73,040,589  shares of common stock available for issuance under the ESPP after issuance of the 660,743  shares purchased in the quarter ended March 31, 2016 offering. See note 1 above.

(6)

No new awards may be granted under the 2007 Plan or the 1997 Program.


Item 13.

Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated by reference to the information set forth under the captions "Certain Relationships and Related Party Transactions" and "Board Operations-Independence of Directors" in our proxy statement relating to our 2016 annual meeting of stockholders, which will be filed with the SEC.


Item 14.

Principal Accounting Fees and Services

The information required by this item is incorporated by reference to the information set forth under the caption "Principal Accounting Fees and Services" in our proxy statement relating to our 2016 annual meeting of stockholders, which will be filed with the SEC.




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PART IV



Item 15.

Exhibits and Financial Statement Schedules

1.

The consolidated financial statements of Sprint Corporation filed as part of this annual report are listed in the Index to Consolidated Financial Statements.

2.

The consolidated financial statements of Clearwire Corporation through the date of acquisition filed as part of this annual report are listed in the Index to Consolidated Financial Statements.

3.

The exhibits filed as part of this annual report are listed in the Exhibit Index




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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SPRINT CORPORATION

(Registrant)

By

/s/    M ARCELO  C LAURE

Marcelo Claure

Chief Executive Officer and President

Date: May 17, 2016


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 17 th day of May, 2016 .

/s/    M ARCELO  C LAURE

Marcelo Claure

Chief Executive Officer and President

(Principal Executive Officer)

/s/    T AREK  A. R OBBIATI

Tarek A. Robbiati

Chief Financial Officer

(Principal Financial Officer)

/s/    P AUL  W. S CHIEBER, J R.

Paul W. Schieber, Jr.

Vice President and Controller

(Principal Accounting Officer)



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SIGNATURES

SPRINT CORPORATION

(Registrant)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 17 th day of May, 2016 .

/s/    M ASAYOSHI  S ON

/s/    M ARCELO  C LAURE

Masayoshi Son, Chairman

Marcelo Claure, Director

/s/    R ONALD  D. F ISHER

/s/    J ULIUS  G ENACHOWSKI

Ronald D. Fisher, Vice Chairman

Julius Genachowski, Director

/s/    N IKESH  A RORA

/s/    M ICHAEL  G. M ULLEN

Nikesh Arora, Director

Michael G. Mullen, Director

/s/    R OBERT  R. B ENNETT

/s/    S ARA  M ARTINEZ T UCKER

Robert R. Bennett, Director

Sara Martinez Tucker, Director

/ S /   G ORDON  M. B ETHUNE

Gordon M. Bethune, Director




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Exhibit Index

Exhibit No.

Exhibit Description

Form

Incorporated by Reference

Filed/Furnished

Herewith

SEC

File No.

Exhibit

Filing Date

(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession

2.1**

Agreement and Plan of Merger, dated as of October 15, 2012, by and among Sprint Nextel Corporation, SoftBank Corp., Starburst I, Inc., Starburst II, Inc. and Starburst III, Inc.

8-K

001-04721

2.1


10/15/2012

2.2

First Amendment to Agreement and Plan of Merger, dated November 29, 2012, by and among Sprint Nextel Corporation, SoftBank Corp., Starburst I, Inc., Starburst II, Inc. and Starburst III, Inc.

10-Q

001-04721

2.5


5/6/2013

2.3

Second Amendment to Agreement and Plan of Merger, dated April 12, 2013, by and among Sprint Nextel Corporation, SoftBank Corp., Starburst I, Inc., Starburst II, Inc. and Starburst III, Inc.

10-Q

001-04721

2.6


5/6/2013

2.4**

Third Amendment to Agreement and Plan of Merger, dated June 10, 2013, by and among Sprint Nextel Corporation, SoftBank Corp., Starburst I, Inc., Starburst II, Inc. and Starburst III, Inc.

8-K

001-04721

2.1


6/11/2013

2.5**

Agreement and Plan of Merger, dated as of December 17, 2012, by and among Sprint Nextel Corporation, Collie Acquisition Corp. and Clearwire Corporation

8-K

001-04721

2.1


12/18/2012

2.6**

First Amendment to Agreement and Plan of Merger, dated as of April 18, 2013, by and among Sprint Nextel Corporation, Collie Acquisition Corp. and Clearwire Corporation (Filed as Annex-2 to Clearwire Corporation's Proxy Statement)

DEFM14A

001-34196

4/23/2013

2.7**

Second Amendment to Agreement and Plan of Merger, dated as of May 21, 2013, by and among Sprint Nextel Corporation, Collie Acquisition Corp. and Clearwire Corporation

8-K

001-04721

2.1


5/22/2013

2.8**

Third Amendment to Agreement and Plan of Merger, dated June 20, 2013, by and among Sprint Nextel Corporation, Collie Acquisition Corp. and Clearwire Corporation

8-K

001-04721

2.1


6/21/2013

(3) Articles of Incorporation and Bylaws

3.1

Amended and Restated Certificate of Incorporation

8-K

001-04721

3.1


7/11/2013

3.2

Amended and Restated Bylaws

8-K

001-04721

3.2


8/7/2013

(4) Instruments Defining the Rights of Security Holders, including Indentures

4.1

Indenture, dated as of October 1, 1998, by and among Sprint Capital Corporation, Sprint Corporation and The Bank of New York Mellon Trust Company, N.A. (as successor to Bank One, N.A.)

10-Q

001-04721

4(b)


11/2/1998

4.2

First Supplemental Indenture, dated as of January 15, 1999, by and among Sprint Capital Corporation, Sprint Corporation and The Bank of New York Mellon Trust Company, N.A. (as successor to Bank One, N.A.)

8-K

001-04721

4(b)


2/3/1999


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Exhibit No.

Exhibit Description

Form

Incorporated by Reference

Filed/Furnished

Herewith

SEC

File No.

Exhibit

Filing Date

4.3

Second Supplemental Indenture, dated as of October 15, 2001, by and among Sprint Capital Corporation, Sprint Corporation and The Bank of New York Mellon Trust Company, N.A. (as successor to Bank One, N.A.)

8-K

001-04721

99


10/29/2001

4.4

Third Supplemental Indenture, dated as of September 11, 2013, by and among Sprint Corporation, Sprint Capital Corporation, Sprint Communications, Inc. and The Bank of New York Mellon Trust Company, N.A. (as successor to Bank One, N.A.)

8-K

001-04721

4.5


9/11/2013

4.5

Indenture, dated as of November 20, 2006, by and between Sprint Nextel Corporation and The Bank of New York Mellon Trust Company, N.A.

8-K

001-04721

4.1


11/9/2011

4.6

First Supplemental Indenture, dated as of November 9, 2011, by and between Sprint Nextel Corporation and The Bank of New York Mellon Trust Company, N.A.

8-K

001-04721

4.2


11/9/2011

4.7

Second Supplemental Indenture, dated as of November 9, 2011, by and among Sprint Nextel Corporation, the Subsidiary Guarantors and The Bank of New York Mellon Trust Company, N.A.

8-K

001-04721

4.3


11/9/2011

4.8

Third Supplemental Indenture, dated as of March 1, 2012, by and between Sprint Nextel Corporation and The Bank of New York Mellon Trust Company, N.A.

8-K

001-04721

4.1


3/1/2012

4.9

Fourth Supplemental Indenture, dated as of March 1, 2012, by and among Sprint Nextel Corporation, the Subsidiary Guarantors and The Bank of New York Mellon Trust Company, N.A.

8-K

001-04721

4.2


3/1/2012

4.10

Fifth Supplemental Indenture, dated as of August 14, 2012, by and between Sprint Nextel Corporation and The Bank of New York Mellon Trust Company, N.A.

8-K

001-04721

4.1


8/14/2012

4.11

Sixth Supplemental Indenture, dated as of November 14, 2012, by and between Sprint Nextel Corporation and The Bank of New York Mellon Trust Company, N.A.

8-K

001-04721

4.1


11/14/2012

4.12

Seventh Supplemental Indenture, dated as of November 20, 2012, by and between Sprint Nextel Corporation and The Bank of New York Mellon Trust Company, N.A.

8-K

001-04721

4.1


11/20/2012

4.13

Eighth Supplemental Indenture, dated as of September 11, 2013, by and among Sprint Corporation, Sprint Communications, Inc. and The Bank of New York Mellon Trust Company, N.A.

8-K

001-04721

4.4


9/11/2013

4.14

Ninth Supplemental Indenture, dated as of June 26, 2014, by and between Bright PCS Holdings, Inc., Bright Personal Communications Services, LLC, Horizon Personal Communications, Inc., iPCS Equipment, Inc., iPCS Wireless, Inc., Pinsight Media+, Inc., OneLouder Apps, Inc., iPCS, Inc., Sprint Communications, Inc. and The Bank of New York Mellon Trust Company, N.A.

10-Q

001-04721

4.1


8/8/2014


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Exhibit No.

Exhibit Description

Form

Incorporated by Reference

Filed/Furnished

Herewith

SEC

File No.

Exhibit

Filing Date

4.15

Indenture, dated as of September 11, 2013, by and between Sprint Corporation and The Bank of New York Mellon Trust Company, N.A.

8-K

001-04721

4.1


9/11/2013

4.16

First Supplemental Indenture, dated as of September 11, 2013, by and among Sprint Corporation, Sprint Communications, Inc. and The Bank of New York Mellon Trust Company, N.A.

8-K

001-04721

4.2


9/11/2013

4.17

Second Supplemental Indenture, dated as of September 11, 2013, by and among Sprint Corporation, Sprint Communications, Inc. and The Bank of New York Mellon Trust Company, N.A.

8-K

001-04721

4.3


9/11/2013

4.18

Third Supplemental Indenture, dated as of December 12, 2013, by and among Sprint Corporation, Sprint Communications, Inc. and The Bank of New York Mellon Trust Company, N.A.

8-K

001-04721

4.1


12/12/2013

4.19

Fourth Supplemental Indenture, dated as of February 24, 2015, by and among Sprint Corporation, Sprint Communications, Inc. and The Bank of New York Mellon Trust Company, N.A.

8-K

001-04721

4.1


2/24/2015

(10) Material Contracts

10.1

Credit Agreement, dated as of February 28, 2013, by and among Sprint Nextel Corporation, as Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders named therein

8-K

001-04721

10.1


3/5/2013

10.2

Incremental Amendment No. 1, dated as of April 2, 2013, to the Credit Agreement, dated as of February 28, 2013, among Sprint Nextel Corporation, the Subsidiary Guarantors party thereto, the Lenders thereto and JPMorgan Chase Bank, N.A., as Administrative Agent

10-Q

001-04721

10.4


5/6/2013

10.3

Incremental Amendment No. 2, dated as of February 10, 2014, to the Credit Agreement, dated as of February 28, 2013, among Sprint Communications, Inc. (f/k/a Sprint Nextel Corporation), the Subsidiary Guarantors party thereto, the Lenders thereto and JPMorgan Chase Bank, N.A., as Administrative Agent

10-K

001-04721

10.8


2/24/2014

10.4

Waiver to Credit Agreement, dated as of September 9, 2013, by and among Sprint Communications, Inc., JPMorgan Chase Bank, N.A., as Administrative Agent and Lender, and the lenders party thereto

8-K

001-04721

10.3


9/11/2013

10.5

Amendment, dated as of October 30, 2014, to the Credit Agreement, dated as of February 28, 2013, by and among Sprint Communications, Inc. (f/k/a Sprint Nextel Corporation), the Subsidiary Guarantors party thereto, the Lenders thereto and JPMorgan Chase Bank, N.A., as Administrative Agent

8-K

001-04721

10.1


11/4/2014


74

Table of Contents


Exhibit No.

Exhibit Description

Form

Incorporated by Reference

Filed/Furnished

Herewith

SEC

File No.

Exhibit

Filing Date

10.6

Amended and Restated Receivables Purchase Agreement, dated as of April 24, 2015, among Sprint Spectrum L.P., individually and as Servicer, the Sellers party thereto, the various Conduit Purchasers, Committed Purchasers, and Purchaser Agents from time to time party thereto, Mizuho Bank Ltd. as Administrative Agent and Collateral Agent and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as Administrative Agent

8-K

001-04721

10.1


4/27/2015

10.7

Second Amended and Restated Receivables Purchase Agreement, dated as of November 19, 2015, by and among Sprint Spectrum L.P., as servicer, certain Sprint special purpose entities, as sellers, certain commercial paper conduits and financial institutions from time to time party thereto, as purchaser agents, The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as administrative agent, SMBC Nikko Securities America, Inc., as administrative agent, and Mizuho Bank, Ltd., as administrative agent and collateral agent

8-K

001-04721

10.6


11/20/2015

10.8

Amended and Restated Receivables Sale Agreement, dated as of April 24, 2015, between Sprint Spectrum L.P., as an Originator and as Servicer, the other Originators from time to time party thereto and the Buyers from time to time party thereto

8-K

001-04721

10.2


4/27/2015

10.9

Second Amended and Restated Receivables Sale and Contribution Agreement, dated as of November 19, 2015, by and among certain Sprint subsidiaries as originators and special purpose entities

8-K

001-04721

10.7


11/20/2015

10.10

Amended and Restated First Step Transfer Agreement (Tranche 1), dated as of April 28, 2016, among the originators from time to time party thereto, the lessees from time to time party thereto and Sprint Spectrum L.P.

*

10.11

Amended and Restated Second Step Transfer Agreement (Tranche 1), dated as of April 28, 2016, among the lessees from time to time party thereto and Mobile Leasing Solutions, LLC

*

10.12

Amended and Restated Master Lease Agreement (Tranche 1), dated as of April 28, 2016, among Mobile Leasing Solutions, LLC, the lessees from time to time party thereto, Sprint Spectrum L.P. and Mizuho Bank, Ltd., as collateral agent

*

10.13

Amended and Restated Performance Support Agreement (Tranche 1), dated as of April 28, 2016, by Sprint Corporation in favor of Mobile Leasing Solutions, LLC

*

10.14

Amended and Restated Guaranty (Tranche 1), dated as of April 28, 2016, by Sprint Corporation in favor of Mobile Leasing Solutions, LLC

*

10.15

Form of Sale Agreement, dated as of March 31, 2016 (effective as of April 5, 2016), by and between the lessees party thereto and the purchasers party thereto

8-K

001-04721

10.1


4/6/2016


75

Table of Contents


Exhibit No.

Exhibit Description

Form

Incorporated by Reference

Filed/Furnished

Herewith

SEC

File No.

Exhibit

Filing Date

10.16

Master Lease Agreement, dated as of March 31, 2016 (effective as of April 5, 2016), among the purchasers party thereto and the lessees party thereto

8-K

001-04721

10.2


4/6/2016

10.17

Guaranty, dated as of March 31, 2016 (effective as of April 5, 2016), by Sprint Corporation in favor of the purchasers party thereto

8-K

001-04721

10.3


4/6/2016

10.18

First Step Transfer Agreement (Tranche 2), dated as of April 28, 2016, among the originators from time to time party thereto, the lessees from time to time party thereto and Sprint Spectrum L.P.

8-K

001-04721

10.1


4/29/2016

10.19

Second Step Transfer Agreement (Tranche 2), dated as of April 28, 2016, among the lessees from time to time party thereto and Mobile Leasing Solutions, LLC, acting for itself and on behalf of Series 2 thereof

8-K

001-04721

10.2


4/29/2016

10.20

Master Lease Agreement (Tranche 2), dated as of April 28, 2016, among Mobile Leasing Solutions, LLC, acting for itself and on behalf of Series 2 thereof, the lessees from time to time party thereto, Sprint Spectrum L.P. and Mizuho Bank, Ltd., as Collateral Agent

8-K

001-04721

10.3


4/29/2016

10.21

Performance Support Agreement (Tranche 2), dated as of April 28, 2016, by Sprint Corporation in favor of Mobile Leasing Solutions, LLC, acting for itself and on behalf of Series 2 thereof

8-K

001-04721

10.4


4/29/2016

10.22

Guaranty (Tranche 2), dated as of April 28, 2016, by Sprint Corporation in favor of Mobile Leasing Solutions, LLC, acting for itself and on behalf of Series 2 thereof

8-K

001-04721

10.5


4/29/2016

10.23

Credit Agreement, dated as of April 28, 2016, among Sprint Communications, Inc., as borrower, Sprint Corporation and certain subsidiaries of Sprint Communications, Inc., as guarantors, and Mizuho Bank, Ltd., as administrative agent, arranger and bookrunner

8-K

001-04721

10.6


4/29/2016

10.24

Warrant Agreement for Sprint Corporation Common Stock, dated as of July 10, 2013, by and between Sprint Corporation and Starburst I, Inc.

8-K

001-04721

10.6


7/11/2013

(10) Executive Compensation Plans and Arrangements

10.25

Summary of 2013 Long Term Incentive Plan

8-K

001-04721

7/30/2013

10.26

Amended Summary of 2013 Long Term Incentive Plan

8-K/A

001-04721

9/20/2013

10.27

Summary of 2013 Short-Term Incentive Compensation Plan

8-K

001-04721

3/5/2013

10.28

Amended Summary of 2013 Short-Term Incentive Compensation Plan

8-K/A

001-04721

7/30/2013

10.29

Summary of 2014 Short-Term Incentive Compensation Plan

8-K

001-04721

2/24/2014


76

Table of Contents


Exhibit No.

Exhibit Description

Form

Incorporated by Reference

Filed/Furnished

Herewith

SEC

File No.

Exhibit

Filing Date

10.30

Amended Summary of 2014 Short-Term Incentive Compensation Plan

8-K/A

001-04721


10/9/2014

10.31

Summary of 2014 Long-Term Incentive Plan

8-K

001-04721


10/9/2014

10.32

STI and LTI Plan Information

10-Q

001-04721

10.4


8/7/2015

10.33

Form of Evidence of Award Agreement (awarding restricted stock units) under the 2007 Omnibus Incentive Plan to Robert L. Johnson

10-Q

001-04721

10.20


11/6/2013

10.34

Form of Evidence of Award Agreement (awarding restricted stock units) under the 2007 Omnibus Incentive Plan to Section 16 officers other than Robert L. Johnson

10-Q

001-04721

10.21


11/6/2013

10.35

Form of Evidence of Award Agreement (awarding performance-based restricted stock units) under the 2007 Omnibus Incentive Plan to Robert L. Johnson

10-Q

001-04721

10.22


11/6/2013

10.36

Form of Evidence of Award Agreement (awarding performance-based restricted stock units) under the 2007 Omnibus Incentive Plan to Joseph J. Euteneuer

10-Q

001-04721

10.24


11/6/2013

10.37

Form of Evidence of Award Agreement (awarding performance-based restricted stock units) under the 2007 Omnibus Incentive Plan to Section 16 officers other than Messrs. Robert L. Johnson and Joseph J. Euteneuer

10-Q

001-04721

10.23


11/6/2013

10.38

Form of Award Agreement (awarding performance-based restricted stock units) under the 2014 Long-Term Incentive Plan to Joseph J. Euteneuer

10-Q

001-04721

10.4


8/8/2014

10.39

Form of Award Agreement (awarding performance-based restricted stock units) under the 2014 Long-Term Incentive Plan to Robert L. Johnson

10-Q

001-04721

10.5


8/8/2014

10.40

Form of Award Agreement (awarding performance-based restricted stock units) under the 2014 Long-Term Incentive Plan to executive officers other than Messrs. Euteneuer and Johnson and Section 16 officers

10-Q

001-04721

10.6


8/8/2014

10.41

Form of Award Agreement (awarding performance-based restricted stock units) under the 2014 Long-Term Incentive Plan to Section 16 officers other than Messrs. Euteneuer and Johnson

10-Q

001-04721

10.7


8/8/2014

10.42

Form of Award Agreement (awarding restricted stock units) under the 2014 Long-Term Incentive Plan to Robert L. Johnson

10-Q

001-04721

10.8


8/8/2014

10.43

Form of Award Agreement (awarding restricted stock units) under the 2014 Long-Term Incentive Plan to all executive officers other than Robert L. Johnson

10-Q

001-04721

10.9


8/8/2014

10.44

Form of Award Agreement (awarding stock options) under the 2014 Long-Term Incentive Plan to Robert L. Johnson

10-Q

001-04721

10.10


8/8/2014


77

Table of Contents


Exhibit No.

Exhibit Description

Form

Incorporated by Reference

Filed/Furnished

Herewith

SEC

File No.

Exhibit

Filing Date

10.45

Form of Award Agreement (awarding stock options) under the 2014 Long-Term Incentive Plan for executive officers with Sprint employment agreements

10-Q

001-04721

10.11


8/8/2014

10.46

Form of Award Agreement (awarding stock options) under the 2014 Long-Term Incentive Plan to executive officers other than those with Sprint employment agreements and Robert L. Johnson

10-Q

001-04721

10.12


8/8/2014

10.47

Form of Turnaround Incentive Award Agreement (awarding restricted stock units) under the 2015 Omnibus Incentive Plan for certain executive officers in exchange for reduced long-term incentive opportunities

10-Q

001-04721

10.6


11/9/2015

10.48

Form of Turnaround Incentive Award Agreement (awarding restricted stock units) under the 2015 Omnibus Incentive Plan for certain executive officers

10-Q

001-04721

10.7


11/9/2015

10.49

Form of Award Agreement (awarding stock options) under the 2015 Omnibus Incentive Plan to executive officers other than those with Sprint employment agreements and Robert L. Johnson

10-Q

001-04721

10.8


11/9/2015

10.50

Form of Award Agreement (awarding restricted stock units) under the 2015 Omnibus Incentive Plan to executive officers other than Robert L. Johnson

10-Q

001-04721

10.9


11/9/2015

10.51

Form of Award Agreement (awarding performance-based restricted stock units) under the 2015 Omnibus Incentive Plan to executive officers other than Robert L. Johnson

10-Q

001-04721

10.10


11/9/2015

10.52

Form of Stock Option Agreement under the Stock Option Exchange Program (for certain Nextel Communication Inc. employees)

Sch. TO-I

005-41991

d(2)


5/17/2010

10.53

Form of Stock Option Agreement under the Stock Option Exchange Program (for all other employees other than those with Nextel employment agreements)

Sch. TO-I/A

005-41991

d(3)


5/21/2010

10.54

Amended and Restated Employment Agreement, effective as of August 11, 2015, by and between Sprint Corporation and Raul Marcelo Claure

8-K

001-04721

10.1


8/11/2015

10.55

Employment Agreement, executed December 20, 2010, effective April 4, 2011, by and between Joseph J. Euteneuer and Sprint Nextel Corporation

8-K

001-04721

10.1


12/21/2010

10.56

First Amendment to Employment Agreement, dated November 20, 2012, by and between Sprint Nextel Corporation and Joseph J. Euteneuer

8-K

001-04721

10.3


11/20/2012

10.57

Second Amendment to Employment Agreement, dated November 11, 2013, by and between Joseph J. Euteneuer and Sprint Communications, Inc.

8-K

001-04721

10.1


11/12/2013

10.58

Third Amendment to Employment Agreement, dated November 14, 2014, between Sprint Communications, Inc. and Joseph J. Euteneuer

10-Q

001-04721


10.4


2/5/2015


78

Table of Contents


Exhibit No.

Exhibit Description

Form

Incorporated by Reference

Filed/Furnished

Herewith

SEC

File No.

Exhibit

Filing Date

10.59

Fourth Amendment to Employment Agreement, effective November 6, 2015, by and between Sprint Nextel Corporation, now known as Sprint Communications, Inc., and Joseph Euteneuer

8-K

001-04721


10.1


11/12/2015

10.60

Amended and Restated Employment Agreement, effective December 31, 2008, by and between Robert L. Johnson and Sprint Nextel Corporation

10-K

001-04721

10.26.1


2/27/2009

10.61

Compensatory Agreement, dated June 11, 2008, by and between Robert L. Johnson and Sprint Nextel Corporation

10-Q

001-04721

10.3


8/6/2008

10.62

Letter, dated May 24, 2010, to Robert L. Johnson regarding the Sprint Nextel Corporation Relocation Program

10-Q

001-04721

10.1


8/5/2010

10.63

Letter Agreement, dated November 12, 2014, between Sprint Corporation and Robert L. Johnson

10-Q

001-04721


10.5


2/5/2015

10.64

Amended and Restated Employment Agreement, effective December 31, 2008, by and between Charles R. Wunsch and Sprint Nextel Corporation

10-K

001-04721

10.29


2/27/2009

10.65

First Amendment to Amended and Restated Employment Agreement, effective November 6, 2012, by and between Sprint Nextel Corporation and Charles R. Wunsch

10-K

001-04721

10.43.2


2/28/2013

10.66

Employment Agreement, effective September 6, 2013 by and between Sprint Corporation and Brandon Dow Draper

10-Q

001-04721

10.25


11/6/2013

10.67

Brandon Dow Draper Sign-On Award of Restricted Stock Units

10-Q

001-04721

10.26


11/6/2013

10.68

First Amendment to Employment Agreement, dated February 21, 2014, by and between Sprint Corporation and Brandon Dow Draper

10-KT

001-04721


10.78


5/23/2014

10.69

Employment Agreement, dated January 2, 2016, by and between Sprint Corporation and Jorge Gracia

10-Q

001-04721


10.12


2/4/2016

10.70

Employment Agreement, dated April 1, 2016, by and between Sprint Corporation and Robert Hackl

*

10.71

Employment Agreement, effective May 20, 2014, by and between Sprint Corporation and John C. Saw

10-Q

001-04721


10.1


8/8/2014

10.72

First Amendment to Employment Agreement, effective October 20, 2014, by and between Sprint Corporation and John C. Saw

10-Q

001-04721


10.3


11/6/2014

10.73

Second Amendment to Employment Agreement, effective July 27, 2015, by and between Sprint Corporation and John C. Saw

10-Q

001-04721


10.1


11/9/2015

10.74

Amended and Restated Employment Agreement, effective December 31, 2008, by and between Sprint Nextel Corporation and Jaime A. Jones

10-K

001-04721


10.68


5/26/2015


79

Table of Contents


Exhibit No.

Exhibit Description

Form

Incorporated by Reference

Filed/Furnished

Herewith

SEC

File No.

Exhibit

Filing Date

10.75

First Amendment to Amended and Restated Employment Agreement, effective December 13, 2012, by and between Sprint Nextel Corporation and Jaime A. Jones

10-K

001-04721


10.69


5/26/2015

10.76

Second Amendment to Amended and Restated Employment Agreement, effective December 13, 2012, by and between Sprint Nextel Corporation and Jaime A. Jones

*

10.77

Employment Agreement, effective August 3, 2015, by and between Sprint Corporation and Guenther Ottendorfer

10-Q

001-04721


10.2


11/9/2015

10.78

Employment Agreement, dated August 2, 2015, by and between Sprint Corporation and Tarek Robbiati

8-K

001-04721


10.1


8/3/2015

10.79

Amended and Restated Agreement Regarding Special Compensation and Post Employment Restrictive Covenants, dated December 31, 2008, by and between Sprint Nextel Corporation and Paul W. Schieber

10-K

001-04721

10.80


2/24/2014

10.80

First Amendment to Amended and Restated Agreement Regarding Special Compensation and Post Employment Restrictive Covenants, dated December 11, 2012, by and between Sprint Nextel Corporation and Paul W. Schieber

10-K

001-04721

10.81


2/24/2014

10.81

Employment Agreement, dated September 27, 2012 and effective as of January 2, 2013, by and between Sprint Nextel Corporation and Michael Schwartz

10-K

001-04721

10.48.1


2/28/2013

10.82

First Amendment to Employment Agreement, dated December 10, 2012, by and between Sprint Nextel Corporation and Michael Schwartz

10-K

001-04721

10.48.2


2/28/2013

10.83

Second Amendment to Employment Agreement, dated November 12, 2014, between Sprint Communications, Inc. and Michael Schwartz

10-Q

001-04721


10.6


2/5/2015

10.84

Employment Agreement, dated May 1, 2015, by and between Sprint Corporation and Roger Sole Rafols

10-Q

001-04721


10.11


2/4/2016

10.85

Employment Agreement, dated May 31, 2015, by and between Sprint Corporation and Kevin Crull

10-Q

001-04721

10.3


8/7/2015

10.86

Sprint Corporation 2007 Omnibus Incentive Plan

8-K

001-04721

10.2


9/20/2013

10.87

Sprint Corporation 2015 Omnibus Incentive Plan

10-Q

001-04721

10.4


11/9/2015

10.88

Sprint Corporation Change in Control Severance Plan

*

10.89

Sprint Corporation Deferred Compensation Plan, as amended and restated effective September 26, 2014

10-Q

001-04721

10.2


11/6/2014

10.90

Executive Deferred Compensation Plan, as amended and restated effective January 1, 2008

10-K

001-04721

10.35


2/27/2009

10.91

Summary of Director Compensation Programs

10-Q

001-04721

10.19


11/6/2013

10.92

Director's Deferred Fee Plan, as amended and restated effective January 1, 2008

10-K

001-04721

10.37


2/27/2009


80

Table of Contents


Exhibit No.

Exhibit Description

Form

Incorporated by Reference

Filed/Furnished

Herewith

SEC

File No.

Exhibit

Filing Date

10.93

Form of Award Agreement (awarding restricted stock units) under the 2007 Omnibus Incentive Plan for non-employee directors

10-Q

001-04721

10.10


5/9/2007

10.94

Form of Award Agreement (awarding restricted stock units) under the 2015 Omnibus Incentive Plan for non-employee directors

10-Q

001-04721

10.5


11/9/2015

10.95

Form of Election to Defer Delivery of Shares Subject to RSUs (Outside Directors)

*

10.96

Form of Indemnification Agreement to be entered into by and between Sprint Corporation and certain of its directors

8-K

001-04721

10.1


7/11/2013

10.97

Form of Indemnification Agreement to be entered into by and between Sprint Corporation and certain of its officers

8-K

001-04721

10.2


7/11/2013

10.98

Form of Indemnification Agreement to be entered into by and between Sprint Corporation and certain individuals who serve as both a director and officer of Sprint Corporation

8-K

001-04721

10.3


7/11/2013

(12) Statement re Computation of Ratios

12

Computation of Ratio of Earnings to Fixed Charges

*

(21) Subsidiaries of the Registrant

21

Subsidiaries of the Registrant

*

(23) Consents of Experts and Counsel

23.1

Consent of KPMG LLP, Independent Registered Public Accounting Firm

*

23.2

Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm

*

23.3

Consent of Deloitte & Touche LLP, Independent Auditors

*

23.4

Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm

*

(31) and (32) Officer Certifications

31.1

Certification of Chief Executive Officer Pursuant to Securities Exchange Act of 1934 Rule 13a-14(a)

*

31.2

Certification of Chief Financial Officer Pursuant to Securities Exchange Act of 1934 Rule 13a-14(a)

*

32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002

*

32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002

*


81

Table of Contents


Exhibit No.

Exhibit Description

Form

Incorporated by Reference

Filed/Furnished

Herewith

SEC

File No.

Exhibit

Filing Date

(101) Formatted in XBRL (Extensible Business Reporting Language)

101.INS

XBRL Instance Document

*

101.SCH

XBRL Taxonomy Extension Schema Document

*

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

*

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

*

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

*

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

*

_________________

*

Filed or furnished, as required.

**

Schedules and/or exhibits not filed will be furnished to the SEC upon request, pursuant to Item 601(b)(2) of Regulation S-K.


82

Table of Contents


SPRINT CORPORATION

Index to Consolidated Financial Statements

Page

Reference

Sprint Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firms

F-2

Successor Consolidated Balance Sheets as of March 31, 2016 and 2015

F-4

Successor Consolidated Statements of Operations for the years ended March 31, 2016 and 2015, three months ended March 31, 2014 and 2013 (unaudited), and year ended December 31, 2013 and Predecessor Consolidated Statements of Operations for the 191 days ended July 10, 2013, and three months ended March 31, 2013 (unaudited)

F-5

Successor Consolidated Statements of Comprehensive Loss for the years ended March 31, 2016 and 2015, three months ended March 31, 2014 and 2013 (unaudited), and year ended December 31, 2013 and Predecessor Consolidated Statements of Comprehensive Loss for the 191 days ended July 10, 2013, and three months ended March 31, 2013 (unaudited)

F-6

Successor Consolidated Statements of Cash Flows for the years ended March 31, 2016 and 2015, three months ended March 31, 2014 and 2013 (unaudited), and year ended December 31, 2013 and Predecessor Consolidated Statements of Cash Flows for the 191 days ended July 10, 2013, and three months ended March 31, 2013 (unaudited)

F-7

Successor Consolidated Statements of Stockholders' Equity for the years ended March 31, 2016 and 2015, three months ended March 31, 2014, and year ended December 31, 2013 and Predecessor Consolidated Statements of Stockholders' Equity for the 191 days ended July 10, 2013

F-9

Notes to the Consolidated Financial Statements

F-10

Clearwire Consolidated Financial Statements

Independent Auditor's Report

F-68

Report of Independent Registered Public Accounting Firm

F-69

Consolidated Balance Sheets as of July 9, 2013 and December 31, 2012

F-70

Consolidated Statements of Operations for the 190 days ended July 9, 2013 and years ended December 31, 2012 and 2011

F-71

Consolidated Statements of Comprehensive Loss for the 190 days ended July 9, 2013 and years ended December 31, 2012 and 2011

F-72

Consolidated Statements of Cash Flows for the 190 days ended July 9, 2013 and years ended December 31, 2012 and 2011

F-73

Consolidated Statements of Stockholders' Equity and Comprehensive Loss for the 190 days ended July 9, 2013 and years ended December 31, 2012 and 2011

F-74

Notes to the Consolidated Financial Statements

F-75




F-1

Table of Contents


Index to Consolidated Financial Statements


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

Sprint Corporation

Overland Park, Kansas

We have audited the accompanying Successor consolidated balance sheets of Sprint Corporation and subsidiaries (the "Company") as of March 31, 2016 and 2015 , and the related Successor consolidated statements of operations, comprehensive loss, cash flows and stockholders' equity for the years ended March 31, 2016 and 2015 , the three-month period ended March 31, 2014, and the year ended December 31, 2013. We also have audited the Company's internal control over financial reporting as of March 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Successor consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sprint Corporation and subsidiaries as of March 31, 2016 and 2015 , and the related results of their operations and their cash flows for the years ended March 31, 2016 and 2015 , the three-month period ended March 31, 2014, and the year ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2016 , based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

As discussed in Notes 1 and 3 to the consolidated financial statements, on July 10, 2013, SoftBank Corp. completed a merger with Sprint Communications, Inc. (formerly Sprint Nextel Corporation) by which Sprint Corporation was the acquiring company of Sprint Communications, Inc. and applied the acquisition method of accounting as of the merger date.


/s/ DELOITTE & TOUCHE LLP

Kansas City, Missouri

May 17, 2016


F-2

Table of Contents


Index to Consolidated Financial Statements


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Sprint Corporation:

We have audited the accompanying consolidated statements of operations, comprehensive loss, cash flows and stockholders' equity of Sprint Communications, Inc. (formerly Sprint Nextel Corporation) and subsidiaries (the Predecessor Company) for the 191 day period ended July 10, 2013. These consolidated financial statements are the responsibility of the Predecessor Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of the Predecessor Company's operations and their cash flows for the 191 day period ended July 10, 2013, in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Kansas City, Missouri

October 21, 2013, except for

Note 18 as to which the date is

June 18, 2014



F-3

Table of Contents


Index to Consolidated Financial Statements


SPRINT CORPORATION

CONSOLIDATED BALANCE SHEETS

March 31,

2016

2015

(in millions, except share and per share data)

ASSETS

Current assets:

Cash and cash equivalents

$

2,641


$

4,010


Short-term investments

-


166


Accounts and notes receivable, net

1,099


2,290


Device and accessory inventory

1,173


1,359


Deferred tax assets

-


62


Prepaid expenses and other current assets

1,920


1,890


Total current assets

6,833


9,777


Property, plant and equipment, net

20,297


19,721


Intangible assets

Goodwill

6,575


6,575


FCC licenses and other

40,073


39,987


Definite-lived intangible assets, net

4,469


5,893


Other assets

728


888


Total assets

$

78,975


$

82,841


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

2,899


$

4,347


Accrued expenses and other current liabilities

4,374


5,293


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

4,690


1,300


Total current liabilities

11,963


10,940


Long-term debt, financing and capital lease obligations

29,268


32,342


Deferred tax liabilities

13,959


13,898


Other liabilities

4,002


3,951


Total liabilities

59,192


61,131


Commitments and contingencies



Stockholders' equity:


Common stock, voting, par value $0.01 per share, 9.0 billion authorized, 3.975 billion and 3.967 billion issued at March 31, 2016 and 2015

40


40


Paid-in capital

27,563


27,468


Treasury shares, at cost

(3

)

(7

)

Accumulated deficit

(7,378

)

(5,383

)

Accumulated other comprehensive loss

(439

)

(408

)

Total stockholders' equity

19,783


21,710


Total liabilities and stockholders' equity

$

78,975


$

82,841


See Notes to the Consolidated Financial Statements


F-4

Table of Contents


Index to Consolidated Financial Statements


SPRINT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

Successor

Predecessor

Year Ended
March 31,

Year Ended
March 31,

Three Months Ended
March 31,

Year Ended

December 31,

191 Days Ended

July 10,

Three Months Ended
March 31,

2016

2015

2014

2013

(Unaudited)

2013

2013

2013

(Unaudited)

(in millions, except per share amounts)

Net operating revenues:

Service

$

27,174


$

29,542


$

7,876


$

-


$

15,094


$

16,895


$

7,980


Equipment

5,006


4,990


999


-


1,797


1,707


813


32,180



34,532


8,875


-


16,891


18,602


8,793


Net operating expenses:


Cost of services (exclusive of depreciation and amortization below)

9,439


9,660


2,622


-


5,174


5,673


2,640


Cost of products (exclusive of depreciation and amortization below)

5,795


9,309


2,038


-


4,603


4,872


2,293


Selling, general and administrative

8,479


9,563


2,371


14


4,841


5,067


2,336


Impairments

-


2,133


-


-


-


-


-


Severance and exit costs

409


304


52


-


309


652


25


Depreciation

5,794


3,797


868


-


2,026


3,098


1,422


Amortization

1,294


1,552


429


-


908


147


70


Other, net

660


109


75


-


-


(22

)

(22

)

31,870



36,427


8,455


14


17,861


19,487


8,764


Operating income (loss)

310



(1,895

)

420


(14

)

(970

)

(885

)

29


Other (expense) income:

Interest expense

(2,182

)

(2,051

)

(516

)

-


(918

)

(1,135

)

(432

)

Equity in losses of unconsolidated investments, net

-


-


-


-


-


(482

)

(202

)

Gain on previously-held equity interests

-


-


-


-


-


2,926


-


Other income (expense), net

18


27


1


6


73


19


-


(2,164

)


(2,024

)

(515

)

6


(845

)

1,328


(634

)

(Loss) income before income taxes

(1,854

)


(3,919

)

(95

)

(8

)

(1,815

)

443


(605

)

Income tax (expense) benefit

(141

)

574


(56

)

(1

)

(45

)

(1,601

)

(38

)

Net loss

$

(1,995

)


$

(3,345

)

$

(151

)

$

(9

)

$

(1,860

)

$

(1,158

)

$

(643

)

Basic and diluted net loss per common share

$

(0.50

)

$

(0.85

)

$

(0.04

)

$

(0.54

)

$

(0.38

)

$

(0.21

)

Basic and diluted weighted average common shares outstanding

3,969


3,953


3,949


3,475


3,027


3,013


See Notes to the Consolidated Financial Statements


F-5

Table of Contents


Index to Consolidated Financial Statements


SPRINT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Successor

Predecessor

Year Ended
March 31,

Year Ended
March 31,

Three Months Ended
March 31,

Year Ended

December 31,

191 Days Ended

July 10,

Three Months Ended
March 31,

2016

2015

2014

2013

(Unaudited)

2013

2013

2013

(Unaudited)

(in millions, except per share amounts)

Net loss

$

(1,995

)

$

(3,345

)

$

(151

)

$

(9

)

$

(1,860

)

$

(1,158

)

$

(643

)

Other comprehensive (loss) income, net of tax:

Foreign currency translation adjustment

(11

)

(25

)

1


-


3


(8

)

(2

)

Unrealized holding (losses) gains on securities:

Unrealized holding (losses) gains on securities

(1

)

(6

)

1


-


6


(4

)

1


Less: Reclassification adjustment for realized gains included in net loss

-


-


-


-


-


-


-


Net unrealized holding (losses) gains on securities

(1

)

(6

)

1


-


6


(4

)

1


Unrecognized net periodic pension and other postretirement benefits:

Net actuarial (loss) gain

(38

)

(393

)

(147

)

-


93


-


-


Net prior service credits arising during the period

9


-


-


-


-


-


-


Less: Amortization of actuarial loss, included in net loss

10


-


-


-


-


35


15


Less: Settlement event charge, included in net loss

-


59


-


-


-


-


-


Net unrecognized net periodic pension and other postretirement benefits

(19

)

(334

)

(147

)

-


93


35


15


Other comprehensive (loss) income

(31

)

(365

)

(145

)

-


102


23


14


Comprehensive loss

$

(2,026

)

$

(3,710

)

$

(296

)

$

(9

)

$

(1,758

)

$

(1,135

)

$

(629

)

See Notes to the Consolidated Financial Statements



F-6

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS




Successor

Predecessor

Year Ended
March 31,

Year Ended
March 31,

Three Months Ended
March 31,

Year Ended

December 31,

191 Days Ended

July 10,

Three Months Ended
March 31,

2016

2015

2014

2013

(Unaudited)

2013

2013

2013

(Unaudited)

(in millions)

Cash flows from operating activities:

Net loss

$

(1,995

)

$

(3,345

)

$

(151

)

$

(9

)

$

(1,860

)

$

(1,158

)

$

(643

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Impairments

-


2,133


-


-


-


-


-


Depreciation and amortization

7,088


5,349


1,297


-


2,934


3,245


1,492


Provision for losses on accounts receivable

455


892


153


-


261


194


83


Share-based and long-term incentive compensation expense

75


86


35


-


98


37


17


Deferred income tax
expense (benefit)

123


(609

)

46


(1

)

32


1,586


24


Equity in losses of unconsolidated investments, net

-


-


-


-


-


482


202


Gain on previously-held equity interests

-


-


-


-


-


(2,926

)

-


Amortization and accretion of long-term debt premiums and discounts

(316

)

(303

)

(74

)

-


(160

)

9


14


Loss on disposal of property, plant and equipment

487


-


75


-


-


-


-


Litigation

193


91


-


-


-


-


-


Other changes in assets and liabilities:

Accounts and notes receivable

(1,663

)

(644

)

(232

)

(11

)

(558

)

150


215


Deferred purchase price from sale of receivables

2,478


-


-


-


-


-


-


Inventories and other current assets

(3,065

)

(1,573

)

173


-


(391

)

298


243


Accounts payable and other current liabilities

(574

)

481


(490

)

8


25


280


(734

)

Non-current assets and liabilities, net

111


(199

)

(350

)

-


(386

)

207


16


Other, net

500


91


40


11


(56

)

267


11


Net cash provided by (used in) operating activities

3,897


2,450


522


(2

)

(61

)

2,671


940


Cash flows from investing activities:

Capital expenditures - network and other

(4,680

)

(5,422

)

(1,488

)

-


(3,847

)

(3,140

)

(1,381

)

Capital expenditures - leased devices

(2,292

)

(582

)

-


-


-


-


-


Expenditures relating to FCC licenses

(98

)

(163

)

(152

)

-


(146

)

(125

)

(55

)

Reimbursements relating to FCC licenses

-


95


-


-


-


-


-


Acquisitions, net of cash acquired

-


-


-


-


(14,112

)

(4,039

)

-


Investment in Clearwire (including debt securities)

-


-


-


-


-


(308

)

(80

)

Proceeds from sales and maturities of short-term investments

418


3,131


920


-


1,715


2,445


1,281


Purchases of short-term investments

(252

)

(2,077

)

(1,035

)

-


(1,719

)

(1,221

)

(926

)

Proceeds from sales of assets and FCC licenses

62


315


1


-


7


10


6


Proceeds from sale-leaseback transaction

1,136


-


-


-


-


-


-


Other, net

(29

)

(11

)

(2

)

-


(6

)

(7

)

(3

)

Net cash used in investing activities

(5,735

)

(4,714

)

(1,756

)

-


(18,108

)

(6,385

)

(1,158

)


F-7

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)



Successor

Predecessor

Year Ended
March 31,

Year Ended
March 31,

Three Months Ended
March 31,

Year Ended

December 31,

191 Days Ended

July 10,

Three Months Ended
March 31,

2016

2015

2014

2013

(Unaudited)

2013

2013

2013

(Unaudited)

(in millions)

Cash flows from financing activities:

Proceeds from debt and financings

755


1,930


-


-


9,500


204


204


Repayments of debt, financing and capital lease obligations

(899

)

(574

)

(159

)

-


(3,378

)

(362

)

(59

)

Proceeds from sales of future lease receivables

600


-


-


-


-


-


-


Debt financing costs

(11

)

(87

)

(1

)

-


(147

)

(11

)

(10

)

Proceeds from issuance of common stock and warrants, net

10


35


-


-


18,567


60


7


Other, net

14


-


-


-


(14

)

-


-


Net cash provided by (used in) financing activities

469


1,304


(160

)

-


24,528


(109

)

142


Net (decrease) increase in cash and cash equivalents

(1,369

)

(960

)

(1,394

)

(2

)

6,359


(3,823

)

(76

)

Cash and cash equivalents, beginning of period

4,010


4,970


6,364


5


5


6,351


6,351


Cash and cash equivalents, end of period

$

2,641


$

4,010


$

4,970


$

3


$

6,364


$

2,528


$

6,275



See Notes to the Consolidated Financial Statements


F-8

Table of Contents


Index to Consolidated Financial Statements


SPRINT CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in millions)

Predecessor

Common Stock

Paid-in

Capital

Treasury Shares

Accumulated

Deficit

Accumulated

Other

Comprehensive

(Loss) Income

Total

Shares

Amount

Shares

Amount

Balance, December 31, 2012

3,010


$

6,019


$

47,016


-


$

-


$

(44,815

)

$

(1,133

)

$

7,087


Net loss

(1,158

)

(1,158

)

Other comprehensive income, net of tax

23


23


Issuance of common stock, net

16


33


27


60


Share-based compensation expense

18


18


Conversion of convertible debt

590


1,181


1,919


3,100


Balance, July 10, 2013

3,616


$

7,233


$

48,980


-


$

-


$

(45,973

)

$

(1,110

)

$

9,130


Successor

Balance, December 31, 2012  (1)

-


$

-


$

3,137


-


$

-


$

(27

)

$

-


$

3,110


Expenses incurred by SoftBank for the benefit of Sprint

97


97


Net loss

(1,860

)

(1,860

)

Other comprehensive income, net of tax

102


102


Issuance of common stock, net

7


27


27


Share-based compensation expense

45


45


Issuance of common stock to SoftBank upon acquisition

3,076


31


18,370


18,401


Issuance of common stock to Sprint stockholders upon acquisition

851


8


5,336


5,344


Conversion of Sprint vested stock-based awards upon acquisition

193


193


Issuance of warrant to SoftBank prior to acquisition

139


139


Return of capital to SoftBank prior to acquisition

(14

)

(14

)

Balance, December 31, 2013

3,934


$

39


$

27,330


-


$

-


$

(1,887

)

$

102


$

25,584


Net loss

(151

)

(151

)

Other comprehensive loss, net of tax

(145

)

(145

)

Issuance of common stock, net

7


-


Share-based compensation expense

24


24


Balance, March 31, 2014

3,941


$

39


$

27,354


-


$

-


$

(2,038

)

$

(43

)

$

25,312


Net loss

(3,345

)

(3,345

)

Other comprehensive loss, net of tax

(365

)

(365

)

Issuance (repurchase) of common stock, net

26


1


41


1


(7

)

35


Share-based compensation expense

71


71


Capital contribution by SoftBank

2



2


Balance, March 31, 2015

3,967


$

40


$

27,468


1


$

(7

)

$

(5,383

)

$

(408

)

$

21,710


Net loss

(1,995

)

(1,995

)

Other comprehensive loss, net of tax

(31

)

(31

)

Issuance of common stock, net

7


6


4


10


Share-based compensation expense

71


71


Capital contribution by SoftBank

14


14


Other, net

4


4


Balance, March 31, 2016

3,974


$

40


$

27,563


1


$

(3

)

$

(7,378

)

$

(439

)

$

19,783


_________________ 

(1)

For the Successor period beginning October 5, 2012 and ending December 31, 2012, there were approximately 3 million shares of Class B common stock of Starburst II, Inc. issued and outstanding with an immaterial value. These shares were exchanged in connection with the issuance of common stock to SoftBank upon completion of the Merger.

See Notes to the Consolidated Financial Statements


F-9

Table of Contents


Index to Consolidated Financial Statements


SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

INDEX

Page

Reference

1.

Description of Operations

F-11

2.

Summary of Significant Accounting Policies and Other Information

F-12

3.

Significant Transactions

F-20

4.

Funding Sources

F-22

5.

Installment Receivables

F-26

6.

Financial Instruments

F-27

7.

Property, Plant and Equipment

F-27

8.

Intangible Assets

F-29

9.

Long-Term Debt, Financing and Capital Lease Obligations

F-31

10.

Severance and Exit Costs

F-34

11.

Supplemental Financial Information

F-35

12.

Income Taxes

F-36

13.

Commitments and Contingencies

F-39

14.

Stockholders' Equity and Per Share Data

F-42

15.

Segments

F-43

16.

Quarterly Financial Data

F-49

17.

Related-Party Transactions

F-50

18.

Guarantor Financial Information

F-52

19.

Subsequent Events

F-67




F-10

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 1.

Description of Operations

Sprint Corporation, including its consolidated subsidiaries, is a communications company offering a comprehensive range of wireless and wireline communications products and services that are designed to meet the needs of individual consumers, businesses, government subscribers and resellers.

The Wireless segment includes retail, wholesale, and affiliate service revenue from a wide array of wireless voice and data transmission services and equipment revenue from the sale or lease of wireless devices and the sale of accessories in the U.S., Puerto Rico and the U.S. Virgin Islands. The Wireline segment includes revenue from domestic and international wireline data communication services in addition to voice, data and IP communication services to our Wireless segment.

On July 9, 2013 (Clearwire Acquisition Date), Sprint Communications completed the acquisition of the remaining equity interests in Clearwire (as defined below) that it did not already own for approximately $3.5 billion , net of cash acquired, or $5.00 per share (Clearwire Acquisition). The consideration paid was allocated to assets acquired and liabilities assumed based on their estimated fair values at the Clearwire Acquisition Date. The effects of the Clearwire Acquisition are included in the Predecessor period financial information and are therefore included in the allocation of the consideration transferred at the SoftBank Merger Date (as defined below).

On July 10, 2013 (SoftBank Merger Date), SoftBank Corp. and certain of its wholly-owned subsidiaries (together, "SoftBank") completed the merger (SoftBank Merger) with Sprint Nextel Corporation (Sprint Nextel) contemplated by the Agreement and Plan of Merger, dated as of October 15, 2012 (as amended, the Merger Agreement), and the Bond Purchase Agreement, dated as of October 15, 2012 (as amended, the Bond Agreement). As a result of the SoftBank Merger, Starburst II, Inc. (Starburst II), a wholly-owned subsidiary of SoftBank, became the parent company of Sprint Nextel. Immediately thereafter, Starburst II changed its name to Sprint Corporation and Sprint Nextel changed its name to Sprint Communications, Inc. In addition, in connection with the closing of the SoftBank Merger, Sprint Corporation became the successor registrant to Sprint Nextel under Rule 12g-3 of the Securities Exchange Act of 1934 (Exchange Act) and is the entity subject to the reporting requirements of the Exchange Act for filings with the Securities and Exchange Commission (SEC) subsequent to the close of the SoftBank Merger. In addition, in order to align with SoftBank's reporting schedule, we changed our fiscal year end to March 31, effective March 31, 2014. As a result, this annual report also includes the three-month transition period of January 1, 2014 through March 31, 2014 as well as the comparable three-month unaudited period of January 1, 2013 through March 31, 2013. References herein to fiscal year 2014 and 2015 refer to the twelve-month periods ending March 31, 2015 and 2016, respectively. See Note 3. Significant Transactions for additional information regarding the SoftBank Merger and related transactions. 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, inclusive of Successor and Predecessor periods described below, and references to "Sprint Communications" are to Sprint Communications, Inc. and its consolidated subsidiaries.

In connection with the change of control, as a result of the SoftBank Merger, Sprint Communications' assets and liabilities were adjusted to fair value on the closing date of the SoftBank Merger. The consolidated financial statements distinguish between the predecessor period (Predecessor) relating to Sprint Communications for periods prior to the SoftBank Merger and the successor period (Successor) relating to Sprint Corporation, formerly known as Starburst II, for periods subsequent to the incorporation of Starburst II on October 5, 2012. The Successor financial information represents the activity and accounts of Sprint Corporation, which includes the activity and accounts of Starburst II prior to the SoftBank Merger Date and Sprint Communications, inclusive of the consolidation of Clearwire Corporation and its wholly-owned subsidiary Clearwire Communications LLC (together, "Clearwire"), prospectively following the SoftBank Merger Date beginning on July 11, 2013 (Post-merger period). The accounts and operating activity of Starburst II prior to the SoftBank Merger Date primarily related to merger expenses that were incurred in connection with the SoftBank Merger (recognized in selling, general and administrative expense) and interest related to the $3.1 billion convertible bond (Bond) Sprint Communications, Inc. issued to Starburst II. The Predecessor financial information represents the historical basis of presentation for Sprint Communications for all periods prior to the SoftBank Merger Date. As a result of the valuation of assets acquired and liabilities assumed at fair value at the SoftBank Merger Date, the financial statements for the Successor period are presented on a measurement basis different than the Predecessor period (Sprint Communications historical cost) and are, therefore, not comparable.



F-11

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Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 2.

Summary of Significant Accounting Policies and Other Information

Basis of Consolidation and Estimates

The consolidated financial statements include our accounts, those of our 100% owned subsidiaries, and subsidiaries we control or in which we have a controlling financial interest. All intercompany transactions and balances have been eliminated in consolidation. Prior to the Clearwire Acquisition Date, we applied the equity method of accounting to the investment in Clearwire because we did not have a controlling vote or the ability to control operating and financial policies.

The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (U.S. GAAP). This requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements. Significant estimates and assumptions are used for, but are not limited to, allowance for doubtful accounts, estimated economic lives and residual values of property, plant and equipment, fair value of identified purchased tangible and intangible assets in a business combination and fair value assessments for purposes of impairment testing.

Certain prior period amounts have been reclassified to conform to the current period presentation.

Change in Accounting Principle

In April 2015, the Financial Accounting Standards Board (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. 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. We elected to adopt the guidance early with full retrospective application effective January 1, 2016. Debt issuance costs associated with our unused credit facilities remain in "Other assets" on the consolidated balance sheets and continue to be amortized over the term of the facilities as allowed by the guidance. Prior period debt issuance costs for all other debt totaling $189 million , have been reclassified from "Other assets" to "Long-term debt, financing and capital lease obligations" on the consolidated balance sheets as of March 31, 2015. Our adoption of this guidance did not have a material effect on our consolidated financial statements.

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. We elected to early adopt the guidance as of January 1, 2016 and applied it prospectively, therefore, prior periods were not retrospectively adjusted. Our adoption of this guidance did not have a material effect on our consolidated financial statements.

Change in Estimate

When estimating the value of returned inventory, we evaluate many factors and obtain information to support the estimated value of used devices and their useful lives. During the year ended March 31, 2015, we observed sustained value and extended useful lives for handsets leading to an increase in the estimated value for returned inventory. As a result, we revised our methodology and assumptions used in estimating the value for returned handsets during the year ended March 31, 2015. 

The change in estimate was accounted for on a prospective basis. The effect of the change in estimate, which was included in "Cost of products" in our consolidated statements of operations, reduced our operating loss by approximately $80 million , or $0.02 per basic and diluted share, for the year ended March 31, 2015. In addition, this change resulted in an increase to "Device and accessory inventory" on the consolidated balance sheet of approximately $80 million .

Summary of Significant Accounting Policies

Cash and Cash Equivalents

Cash equivalents generally include highly liquid investments with maturities at the time of purchase of three months or less. These investments may include money market funds, certificates of deposit, U.S. government and


F-12

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Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


government-sponsored debt securities, corporate debt securities, municipal securities, bank-related securities, and credit and debit card transactions in process. The carrying amounts approximate fair value.

Installment Receivables

Beginning in October 2015, Sprint sold and derecognized all installment receivables as well as the related allowances and deferred interest. Prior to initiating sales of installment receivables, the carrying value of installment receivables approximated fair value because the receivables were recorded at their present value, net of the deferred interest and allowance for credit losses. At the time of the installment sale, we imputed the interest on the installment receivable and recorded it as a reduction to revenue and as a reduction to the face amount of the related receivable. Interest income was recognized over the term of the installment contract in service revenue.

We categorized our installment receivables as prime and subprime based upon subscriber credit profiles and as unbilled, billed-current and billed-past due based upon the age of the receivable. We used proprietary scoring systems that measure the credit quality of our receivables using several factors, such as credit bureau information, subscriber credit risk scores and service plan characteristics. Payment history was subsequently monitored to further evaluate credit profiles. Prime subscriber receivables were those with lower delinquency risk and subprime subscriber receivables were those with higher delinquency risk. Subscribers within the subprime category may have been required to make a down payment on their device and accessory purchases. Installment receivables for which invoices were not yet generated for the customer were considered unbilled. Installment receivables for which invoices were generated but which were not past the contractual due date were considered billed - current. Installment receivables for which invoices were generated and the payment was approximately ten days past the contractual due date were considered billed - past due. Account balances were written-off if collection efforts were unsuccessful and future collection was unlikely based on the length of time from the day accounts become past due.

Allowance for Doubtful Accounts

An allowance for doubtful accounts is established to cover probable and reasonably estimable losses. Because of the number of subscriber accounts, it is not practical to review the collectability of each of those accounts individually to determine the amount of allowance for doubtful accounts each period, although some account level analysis is performed with respect to large wireless and wireline subscribers. The estimate of allowance for doubtful accounts considers a number of factors, including collection experience, aging of the remaining accounts receivable portfolios, credit quality of the subscriber base and other qualitative considerations, including macro-economic factors. Account balances are written-off if collection efforts are unsuccessful and future collection is unlikely based on the length of time from the day accounts become past due. Amounts written off against the allowance for doubtful accounts, net of recoveries and other adjustments, were $612 million , $752 million , $106 million and $98 million for the Successor years ended March 31, 2016 and 2015 , the three-month transition period ended March 31, 2014 and year ended December 31, 2013 , and $374 million and $105 million for the Predecessor 191-day period ended July 10, 2013 and the unaudited three-month period ended March 31, 2013, respectively. See Note 5. Installment Receivables for additional information as it relates to the allowance for doubtful accounts specifically attributable to installment receivables.

Device and Accessory Inventory

Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. The Company sells wireless devices separately or in conjunction with a service contract. When the device is sold below cost, the cost and related revenues generated from the device sales are recognized at the time of sale. The cost and related revenues from device sales are not recognized prior to the time of sale because the promotional discount decision is generally made at the point of sale and because the cost of the device on sales under our subsidy program is expected to be recovered through service revenues.

The net realizable value of devices and other inventory is analyzed on a regular basis. This analysis includes assessing obsolescence, sales forecasts, product life cycle, marketplace and other considerations. If assessments regarding the above factors adversely change, we may sell devices at a higher prices or record a write-down to inventory for obsolete or slow-moving items prior to the point of sale.


F-13

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Property, Plant and Equipment

Property, plant and equipment (PP&E), including improvements that extend useful lives, are recognized at cost. Depreciation on property, plant and equipment is generally calculated using the straight-line method based on estimated economic useful lives of 3 to 30 years for buildings and improvements and network equipment, site costs and related software and 3 to 12 years for non-network internal use software, office equipment and other. Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful life of the respective assets. Leased devices are depreciated using the straight-line method to their estimated residual value generally over the term of the lease. We calculate depreciation on certain network assets using the group life method. Accordingly, ordinary asset retirements and disposals on those assets are charged against accumulated depreciation with no gain or loss recognized. Gains or losses associated with all other asset retirements or disposals are recognized in the consolidated statements of operations. Depreciation rates for assets are revised periodically to account for changes, if any, related to management's strategic objectives, technological changes, estimated residual values, or obsolescence. Changes in our estimates will result in adjustment to depreciation prospectively over the estimated useful lives of our non-leased assets and over the remaining period of benefit for devices leased to our customers. Repair and maintenance costs and research and development costs are expensed as incurred.

We capitalize costs for network and non-network software developed or obtained for internal use during the application development stage. These costs are included in PP&E and, when the software is placed in service, are depreciated over estimated useful lives of three to five years. Costs incurred during the preliminary project and post-implementation stage, as well as maintenance and training costs, are expensed as incurred.

Long-Lived Asset Impairment

Sprint evaluates long-lived assets, including intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Asset groups are determined at the lowest level for which identifiable cash flows are largely independent of cash flows of other groups of assets and liabilities. When the carrying amount of a long-lived asset group is not recoverable and exceeds its fair value, an impairment loss is recognized equal to the excess of the asset group's carrying value over the estimated fair value. See Note 7. Property, Plant and Equipment for additional information on long-lived asset impairments.

Certain assets that have not yet been deployed in the business, including network equipment, cell site development costs and software in development, are periodically assessed to determine recoverability. Network equipment and cell site development costs are expensed whenever events or changes in circumstances cause the Company to conclude the assets are no longer needed to meet management's strategic network plans and will not be deployed. Software development costs are expensed when it is no longer probable that the software project will be deployed. Network equipment that has been removed from the network is also periodically assessed to determine recoverability. If we experience significant operational challenges, including retaining and attracting subscribers, future cash flows of the Company may not be sufficient to recover the carrying value of our wireless asset group, and we could record asset impairments that are material to Sprint's consolidated results of operations and financial condition.

Indefinite-Lived Intangible Assets

Our indefinite-lived intangible assets primarily consist of goodwill, certain of our trademarks and FCC licenses. Goodwill represents the excess of consideration paid over the estimated fair value of the net tangible and identifiable intangible assets acquired in business combinations. In determining whether an intangible asset, other than goodwill, is indefinite-lived, we consider the expected use of the assets, the regulatory and economic environment within which they are being used, and the effects of obsolescence on their use. We assess our indefinite-lived intangible assets, including goodwill, for impairment at least annually or, if necessary, more frequently, whenever events or changes in circumstances indicate the asset may be impaired.

These analyses, which include the determination of fair value, require considerable judgment and are highly sensitive to changes in underlying assumptions. Consequently, there can be no assurance that the estimates and assumptions made for the purposes of estimating the fair values of our indefinite-lived assets, including goodwill, will prove to be an accurate prediction of the future. Continued, sustained declines in the Company's operating results, forecasted future 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


F-14

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


future material impairment of goodwill or other indefinite-lived intangible assets. See Note 8. Intangible Assets for additional information on indefinite-lived intangible asset impairments.

Benefit Plans

We provide a defined benefit pension plan and other postretirement benefits to certain employees, and we sponsor a defined contribution plan for all employees.

In June 2014, the Company's Board of Directors approved a plan amendment to the Sprint Retirement Pension Plan (the Plan) to offer certain terminated participants, who had not begun to receive Plan benefits, the opportunity to voluntarily elect to receive their benefits as an immediate lump sum distribution. Upon expiration of the election period and completion of cash payments on November 28, 2014, the lump sum distribution, totaling approximately $560 million , created a settlement event that resulted in a $59 million charge, which is reflected in "Other, net" in the consolidated statements of operations, and a reduction in the projected benefit obligation of approximately $300 million , impacted by the settlement as well as a change in the mortality tables and a change in the discount rate used to estimate the projected benefit obligation.

As of March 31, 2016 and 2015 , the fair value of our pension plan assets and certain other postretirement benefit plan assets in aggregate was $1.3 billion in both periods and the fair value of our projected benefit obligations in aggregate was $2.2 billion in both periods. As a result, the plans were underfunded by approximately $900 million as of both March 31, 2016 and 2015 and were recorded as a net liability in our consolidated balance sheets. Estimated contributions totaling approximately $50 million are expected to be paid during the fiscal year 2016 .

The offset to the pension liability is recorded in equity as a component of "Accumulated other comprehensive loss," net of tax, including $29 million , $393 million , $147 million , and $93 million for the Successor years ended March 31, 2016 and 2015 , the three-month transition period ended March 31, 2014 , and year ended December 31, 2013 , respectively, which is amortized to "Selling, general and administrative" in Sprint's consolidated statements of operations. The change in the net liability of the Plan in the Successor year ended March 31, 2016 was affected by a change in the discount rate used to estimate the projected benefit obligation, increasing from 4.2% for the Successor year ended March 31, 2015 to 4.3% for the Successor year ended March 31, 2016 , combined with a $9 million prior service credit resulting from an amendment to one of the other postretirement benefit plans during 2015. The change in the net liability of the Plan in the Successor year ended March 31, 2015 was affected by the impact of the settlement event on the projected benefit obligation combined with a change in the discount rate used to estimate the projected benefit obligation, decreasing from 4.9% for the Successor three-month transition period ended March 31, 2014 to 4.2% for the Successor year ended March 31, 2015 . The change in the net liability of the Plan in the Successor three-month transition period ended March 31, 2014 and year ended December 31, 2013 was affected primarily by a change in the discount rate used to estimate the projected benefit obligation, decreasing from 5.3% to 4.9% for the Successor three-month transition period ended March 31, 2014 . We intend to make future cash contributions to the Plan in an amount necessary to meet minimum funding requirements according to applicable benefit plan regulations.

As of December 31, 2005, the Plan was amended to freeze benefit plan accruals for participants. The objective for the investment portfolio of the pension plan is to achieve a long-term nominal rate of return, net of fees, which exceeds the plan's long-term expected rate of return on investments for funding purposes which was 7.75% at March 31, 2016 and 2015 . To meet this objective, our investment strategy for the year ended March 31, 2016 was governed by an asset allocation policy, whereby a targeted allocation percentage is assigned to each asset class as follows: 38% to U.S. equities; 16% to international equities; 28% to fixed income investments; 9% to real estate investments; and 9% to other investments including hedge funds. Actual allocations are allowed to deviate from target allocation percentages within a range for each asset class as defined in the investment policy.

Investments of the Plan are measured at fair value on a recurring basis which is determined using quoted market prices or estimated fair values. As of March 31, 2016 , 31% of the investment portfolio was valued at quoted prices in active markets for identical assets; 49% was valued using quoted prices for similar assets in active or inactive markets, or other observable inputs; and 20% was valued using unobservable inputs that are supported by little or no market activity.

Under our defined contribution plan, participants may contribute a portion of their eligible pay to the plan through payroll withholdings. For the Successor years ended March 31, 2016 and 2015 , the three-month transition period ended March 31, 2014 , and the year ended December 31, 2013 , the Company matched 100% of the participants' pre-tax and Roth


F-15

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Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


contribution (in aggregate) on the first 3% of eligible compensation and 50% of the participants' pre-tax and Roth contribution (in aggregate) on the next 2% of eligible compensation up to a maximum matching contribution of 4% . Fixed matching contributions totaled approximately $54 million , $71 million , $15 million and $35 million for the Successor years ended March 31, 2016 and 2015 , the three-month transition period ended March 31, 2014 and year ended December 31, 2013 , respectively, and $32 million and $15 million for the Predecessor 191-day period ended July 10, 2013 and unaudited three-month period ended March 31, 2013, respectively. Effective January 1, 2016, the Company match is 50% of the participants' pre-tax and Roth contribution (in aggregate) on the first 4% of eligible compensation.

Revenue Recognition

Operating revenues primarily consist of wireless service revenues, revenues generated from device and accessory sales, revenues from leasing a device, revenues from wholesale operators and third-party affiliates, as well as long distance voice, data and Internet revenues. Service revenues consist of fixed monthly recurring charges, variable usage charges and miscellaneous fees such as activation fees, directory assistance, roaming, equipment protection, late payment and early termination charges, interest, and certain regulatory related fees, net of service credits and other adjustments. We generally recognize service revenues as services are rendered, assuming all other revenue recognition criteria are met. We recognize revenue for access charges and other services charged at fixed amounts ratably over the service period, net of credits and adjustments for service discounts, billing disputes and fraud or unauthorized usage. As a result of the cutoff times of our multiple billing cycles each month, we are required to estimate the amount of subscriber revenues earned but not billed from the end of each billing cycle to the end of each reporting period. These estimates are based primarily on rate plans in effect and our historical usage and billing patterns. Regulatory fees and costs are recorded gross. The largest component of the regulatory fees is the Universal Service Fund, which represented no more than 2% of net operating revenues for all periods presented in the consolidated statements of operations.

We recognize equipment revenue and corresponding costs of equipment when title and risk of loss passes to the indirect dealer or end-use subscriber, assuming all other revenue recognition criteria are met. For arrangements involving multiple deliverables such as equipment and service, revenue is allocated to the deliverables based on their relative selling prices. Equipment revenue is limited to the amount of non-contingent consideration received when the device is sold to a subscriber. Equipment revenue is also reduced by the estimated amount of imputed interest associated with installment receivables for subscribers who elect to finance the purchase of a device for up to a 24 -month period. When we subsidize the cost of the device as an incentive to retain and acquire subscribers, the cost of these incentives is recorded as a reduction to revenue upon activation of the device and a service contract.

Qualified subscribers can lease a device for a contractual period of time. At the end of the lease term, subscribers have the option to turn in their device, continue leasing their device or purchase the device. Accounting for device leases involves specific determinations under applicable lease accounting standards, which involve complex and prescriptive provisions. These provisions impact the timing and amount of revenue recognized for our leased devices. The critical elements that are considered with respect to our lease accounting are the economic life of the device and the fair value of the device, including the residual value. We only lease devices to qualifying subscribers that also purchase a service plan. To date, substantially all of our device leases were classified as operating leases. Revenues under these arrangements are included within equipment revenue on the consolidated results of operations and are allocated considering the relative fair values of the lease and non-lease elements included in the multiple-element arrangement. The amount of the arrangement consideration allocated to the operating lease element is recognized ratably over the lease term, which is typically two years.

If a multiple-element arrangement includes an option to purchase, on a monthly basis, an annual trade-in right, the amount of the total arrangement consideration is reduced by the estimated fair value of the trade-in right or the guarantee and the remaining proceeds are then allocated amongst the other deliverables in the arrangement.

The accounting estimates related to the recognition of revenue require us to make assumptions about numerous factors such as future billing adjustments for disputes with subscribers, unauthorized usage, future returns, mail-in rebates on device sales, the fair value of a trade-in right and the total arrangement consideration.

Dealer Commissions

Cash consideration given by us to a dealer or end-use subscriber is presumed to be a reduction of equipment revenue unless we receive, or will receive, an identifiable benefit in exchange for the consideration, and the fair value of such


F-16

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Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


benefit can be reasonably estimated, in which case the consideration will generally be recorded as a selling expense or a purchase of inventory. We compensate our dealers using specific compensation programs related to the sale of our devices and our subscriber service contracts, or both. When a commission is earned by a dealer solely due to a selling activity relating to wireless service, the cost is recorded as a selling expense. When a commission is earned by a dealer due to the dealer selling devices purchased from us, the cost is recorded as a reduction to equipment revenue. Commissions are generally earned upon sale of device, service, or both, to an end-use subscriber. Incentive payments to dealers for sales associated with devices and service contracts are classified as contra-revenue, to the extent the incentive payment is reimbursement of loss on the device, and selling expense for the amount associated with the selling effort. Incentive payments to certain indirect dealers who purchase devices from other sources, such as the original equipment manufacturer (OEM), are recognized as selling expense when the device is activated with a Sprint service plan because Sprint does not recognize any equipment revenue or cost of products for those transactions.

Severance and Exit Costs

Liabilities for severance and exit costs are recognized based upon the nature of the cost to be incurred. For involuntary separation plans that are completed within the guidelines of our written involuntary separation plan, a liability is recognized when it is probable and reasonably estimable. For voluntary separation plans (VSP) a liability is recognized when the VSP is irrevocably accepted by the employee. For one-time termination benefits, such as additional severance pay or benefit payouts, and other exit costs, such as lease termination costs, the liability is measured and recognized initially at fair value in the period in which the liability is incurred, with subsequent changes to the liability recognized as adjustments in the period of change. Severance and exit costs associated with business combinations are recorded in the results of operations when incurred.

Compensation Plans

As of March 31, 2016 , Sprint sponsored three incentive plans: the 2015 Omnibus Incentive Plan (2015 Plan); the 2007 Omnibus Incentive Plan (2007 Plan); and the 1997 Long-Term Incentive Program (1997 Program)(together, "Compensation Plans"). Sprint also sponsors an Employee Stock Purchase Plan (ESPP). Under the 2015 Plan, we may grant share and non-share based awards, including stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and other equity-based and cash awards to employees, outside directors and other eligible individuals as defined by the plan. As of March 31, 2016 , the number of shares available and reserved for future grants under the 2015 Plan and ESPP totaled approximately 133 million common shares. The Compensation Committee of our board of directors, or one or more executive officers should the Compensation Committee so authorize, as provided in the 2015 Plan, will determine the terms of each share and non-share based award. No new grants can be made under the 2007 Plan or the 1997 Program. We use new shares to satisfy share-based awards or treasury shares, if available.

The fair value of each option award is estimated on the grant date using the Black-Scholes option valuation model, based on several assumptions including the risk-free interest rate, volatility, expected dividend yield and expected term. During the Successor year ended March 31, 2016 , the Company granted approximately 12 million stock options with a weighted average grant date fair value of $2.03 per share based upon assumptions of a risk free interest rate from 1.44% to 2.06% , weighted average expected volatility from 42.0% to 69.5% , expected dividend yield of 0% and expected term from 5.5 years years to 6.5 years years. In general, options are granted with an exercise price equal to the market value of the underlying shares on the grant date, vest on an annual basis over three years, and have a contractual term of ten years. As of March 31, 2016 , 41 million options were outstanding, of which 21 million options were exercisable.

We generally determine the fair value of each restricted stock unit award based on the closing price of the Company's common stock on the date of grant. Restricted stock units generally have performance and service requirements or service requirements only with vesting periods ranging from one to three years. During the Successor year ended March 31, 2016 we granted performance-based restricted stock units to senior management that will be earned (Earned Shares) based upon the achievement of certain market conditions equal to specified volume-weighted average prices of the Company common stock during regular trading on the New York Stock Exchange over any 150-day calendar period, during a four-year period ending May 31, 2019. Earned Shares will vest 50% over four years from the grant date and 50% over five years from the grant date, with continuous service required through each vesting date. The fair value of these market-based restricted stock units is estimated at the date of grant using a Monte Carlo valuation methodology, which incorporates into the valuation


F-17

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Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


the possibility that the market condition may not be satisfied. Assumptions used in the Monte Carlo valuation model are consistent with those we use to value stock options and include a risk free interest rate from 1.20% to 1.66% , expected volatility from 53.7% to 70.8% , and expected dividend yield of 0% . The number of restricted stock units that ultimately vest can vary significantly depending upon the performance of the specified market criteria and if below a certain threshold price level, the award will be forfeited in its entirety. Compensation cost related to the share-based awards with market condition is recognized regardless of whether the market condition is achieved.

Employees and directors who are granted restricted stock units are not required to pay for the shares but generally must remain employed with us, or continue to serve as a member of our board of directors, until the restrictions lapse, which is typically three years for employees and one year for directors. Certain restricted stock units outstanding as of March 31, 2016 , are entitled to dividend equivalents paid in cash, if dividends are declared and paid on common shares, but performance-based restricted stock units are not entitled to dividend equivalent payments until the applicable performance and service criteria have been met. During the Successor year ended March 31, 2016 , the Company granted approximately 28 million service only and performance-based restricted stock units, including those with market conditions, with a weighted average grant date fair value of $3.06 per share. At March 31, 2016 , approximately 33 million restricted stock unit awards were outstanding.

Compensation Costs

The cost of employee services received in exchange for share-based awards classified as equity is measured using the estimated fair value of the award on the date of the grant, and that cost is recognized over the period that the award recipient is required to provide service in exchange for the award. Awards of instruments classified as liabilities are measured at the estimated fair value at each reporting date through settlement.

Pre-tax share and non-share based compensation charges from our incentive plans included in net loss were $75 million , $86 million , $35 million and $98 million for the Successor years ended March 31, 2016 and 2015 , the three-month transition period ended March 31, 2014 and the year ended December 31, 2013 , respectively, and $37 million and $17 million for the Predecessor 191-day period ended July 10, 2013 and unaudited three month-period ended March 31, 2013, respectively. The net income tax benefit (expense) recognized in the consolidated financial statements for share-based compensation awards was $20 million , $34 million , $12 million and $34 million for the Successor years ended March 31, 2016 and 2015 , the three-month transition period ended March 31, 2014 and year ended December 31, 2013 , respectively, and $2 million and $(1) million for the Predecessor 191-day period ended July 10, 2013 and unaudited three-month period March 31, 2013, respectively. As of March 31, 2016 , there was $90 million of total unrecognized compensation cost related to non-vested incentive awards that are expected to be recognized over a weighted average period of 2.62 years.

Advertising Costs

We recognize advertising expense when incurred as selling, general and administrative expense. Advertising expenses totaled $1.3 billion , $1.5 billion , $408 million and $697 million for the Successor years ended March 31, 2016 and 2015 , the three-month transition period ended March 31, 2014 and year ended December 31, 2013 , respectively, and $858 million and $409 million for the Predecessor 191-day period ended July 10, 2013 and the unaudited three-month period March 31, 2013, respectively.

Variable Interest Entities (VIE)

VIEs are entities which lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, have equity investors which do not have the ability to make significant decisions relating to the entity's operations through voting rights, do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity. A common type of VIE is a special purposes entity (SPE). SPEs are commonly used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. SPEs are generally structured to insulate investors from claims on the SPE's assets by creditors of other entities, including the creditors of the seller of the assets.

We are required to consolidate the assets and liabilities of VIEs when we are deemed to be the primary beneficiary. The primary beneficiary is the party which has the power to make the decisions that most significantly affect the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.


F-18

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Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


New Accounting Pronouncements

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. The FASB has subsequently issued additional guidance on several areas including the implementation of principal versus agent considerations and recognition of breakage for certain prepaid stored-value products requiring breakage of these liabilities to be accounted for consistent with the breakage guidance under this revenue standard. They also clarified how an entity should evaluate when a promised good or service is distinct within the context of a contract and allowed entities to disregard goods or services that are immaterial in the context of a contract. 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. We expect this guidance to have a material impact on our 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 would have been effective for the Company's fiscal year beginning April 1, 2016, including interim reporting periods within that fiscal year, although early adoption was permitted. The Company has elected to early adopt this guidance effective January 1, 2016. The early adoption of this guidance did not have a material effect on our consolidated financial statements.

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 will be 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 periods within that fiscal year, although early adoption is permitted. The Company is currently evaluating the newly issued guidance and does not expect 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 standard will be effective for the Company's fiscal year beginning April 1, 2017, including interim periods within that fiscal year. The Company does not expect the adoption of this guidance to have a material effect on our consolidated financial statements.


F-19

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE 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 amendments are to be 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, including interim periods within that fiscal year, although early adoption is permitted for financial statements that have not been issued, and will be applied, as necessary, to future business combinations.

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.

In February 2016, the FASB issued authoritative guidance regarding Leases. The new standard will supersede much of the existing authoritative literature for leases. This guidance requires lessees, among other things, to recognize right-of-use assets and liabilities on their balance sheet for all leases with lease terms longer than twelve months. The standard will be effective for the Company for its fiscal year beginning April 1, 2019, including interim periods within that fiscal year with early application permitted. Entities are required to use modified retrospective application for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements with the option to elect certain transition reliefs. The Company is currently evaluating the guidance and we expect it to have a material impact on our consolidated financial statements, however we are still assessing the overall impact.


Note 3.

Significant Transactions

Acquisition of Remaining Interest in Clearwire

On July 9, 2013, Sprint Communications completed the Clearwire Acquisition. The cash consideration paid totaled approximately $3.5 billion , net of cash acquired of $198 million . Approximately $125 million of the cash consideration is accrued for within "Accrued expenses and other current liabilities" on the consolidated balance sheet for dissenting shares relating to stockholders who exercised their appraisal rights.

The fair value of consideration, which is measured at the estimated fair value of each element of consideration transferred as of the Clearwire Acquisition Date, was determined as the sum of (a) approximately $3.7 billion of cash transferred to Clearwire stockholders, which included $125 million of cash relating to dissenting shares, (b) approximately $3.3 billion representing the estimated fair value of Clearwire shares held by Sprint Communications immediately preceding the acquisition and (c) approximately $59 million of share-based payment awards (replacement awards) exchanged for awards held by Clearwire employees.

Purchase Price Allocation

The consideration transferred was allocated to assets acquired and liabilities assumed based on their estimated fair values at the Clearwire Acquisition Date. The allocation of consideration transferred was based on management's judgment after evaluating several factors, including a valuation assessment. Management finalized its purchase price allocation during the quarter ended June 30, 2014. Adjustments made since the initial purchase price allocation decreased recorded goodwill by approximately $269 million and were primarily attributable to a reduction of approximately $270 million made to deferred tax liabilities as a result of additional analysis. The remaining adjustments were insignificant.


F-20

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


The following table summarizes the purchase price allocation of consideration in the Clearwire Acquisition:

Purchase Price Allocation (in millions) :

Current assets

$

778


Property, plant and equipment

1,245


Identifiable intangibles

12,870


Goodwill

437


Other assets

25


Current liabilities

(1,070

)

Long-term debt

(4,288

)

Deferred tax liabilities

(2,130

)

Other liabilities

(876

)

Net assets acquired

$

6,991


SoftBank Transaction

As discussed above, the SoftBank Merger was completed on July 10, 2013 . Sprint Communications, Inc. stockholders received consideration in a combination of both cash and stock, subject to proration. Cash consideration paid in the SoftBank Merger was $14.1 billion , net of cash acquired of $2.5 billion and the estimated fair value of the 22% interest in Sprint Corporation issued to the then existing stockholders of Sprint Communications, Inc.

In addition, pursuant to the Bond Agreement, on October 15, 2012, Sprint Communications, Inc. issued a Bond to Starburst II with a principal amount of $3.1 billion , interest rate of 1% , and maturity date of October 15, 2019, which was converted into 590,476,190 shares of Sprint Communications, Inc. common stock at $5.25 per share immediately prior to the SoftBank Merger Date. As a result of the completion of the SoftBank Merger and subsequent open market stock purchases, SoftBank owned approximately 83% of the outstanding voting common stock of Sprint Corporation and other Sprint stockholders own the remaining approximately 17% as of March 31, 2016 .

Consideration Transferred and Investments by SoftBank

The fair value of consideration transferred, which is measured at the estimated fair value of each element of consideration transferred as of the SoftBank Merger Date, was determined as the sum of (a) approximately $16.6 billion of cash transferred to Sprint Communications, Inc. stockholders, (b) approximately $5.3 billion representing shares of Sprint issued to Sprint Communications, Inc. stockholders and (c) approximately $193 million of share-based payment awards (replacement awards) exchanged for awards held by Sprint employees.

Additionally, SoftBank invested approximately $5.0 billion in the form of a capital contributions to Sprint. The fair value of the investments by SoftBank was determined based on the cash transferred, including $3.1 billion to purchase the Bond and $1.9 billion at the SoftBank Merger Date.

Purchase Price Allocation

The consideration transferred was allocated to assets acquired and liabilities assumed based on their estimated fair values as of the SoftBank Merger Date, inclusive of the Clearwire Acquisition described above. The excess of the consideration transferred over the estimated fair values of assets acquired and liabilities assumed was recorded as goodwill. Goodwill resulting from the SoftBank Merger is allocated to the Wireless segment. The allocation of consideration transferred was based on management's judgment after evaluating several factors, including a valuation assessment. Management finalized its purchase price allocation during the quarter ended June 30, 2014. Adjustments made since the initial purchase price allocation decreased recorded goodwill by approximately $476 million . Indefinite-lived intangible assets increased by approximately $300 million due to additional analysis performed by management during the quarter ended December 31, 2013 and the quarter ended June 30, 2014 related to the value assigned to certain FCC licenses. The remainder of the decrease was due to insignificant changes in various accounts.


F-21

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


The following table summarizes the purchase price allocation of consideration transferred:

Purchase Price Allocation (in millions) :

Current assets

$

8,576


Investments

133


Property, plant and equipment

14,558


Identifiable intangibles

50,672


Goodwill

6,343


Other assets

244


Current liabilities

(10,623

)

Long-term debt

(29,481

)

Deferred tax liabilities

(14,256

)

Other liabilities

(3,989

)

Net assets acquired, prior to conversion of the Bond

22,177


Conversion of Bond

3,100


Net assets acquired, after conversion of the Bond

$

25,277


Pro Forma Financial Information

The following unaudited pro forma consolidated results of operations assume that the SoftBank Merger and Clearwire Acquisition were completed as of January 1, 2013.

Years Ended

December 31,

2013

(in millions)

Net operating revenues

$

35,953


Net loss

$

(4,290

)

Basic loss per common share

$

(1.12

)

The unaudited pro forma financial information was prepared to illustrate the pro forma effect of the combination of Sprint, Sprint Communications and Clearwire using the consideration transferred as of each acquisition date as though the acquisition date for each transaction occurred on January 1, 2013. The preparation of the pro forma financial information also assumed a purchase price allocation of the consideration transferred among the assets acquired and liabilities assumed for each acquiree. The pro forma financial information adjusts the actual combined results for items that are recurring in nature and directly attributable to the Clearwire Acquisition and SoftBank Merger. The pro forma net loss provided excludes certain non-recurring items such as Sprint's gain on its previously held interest in Clearwire and transaction costs associated with the Clearwire Acquisition and SoftBank Merger. As a result, the pro forma financial information presented above excludes a net gain of $1.4 billion and acquisition related costs of approximately $169 million .

This pro forma financial information has been prepared based on estimates and assumptions, which management believes are reasonable, and is not necessarily indicative of the consolidated financial position or results of operations that Sprint would have achieved had the Clearwire Acquisition and/or the SoftBank Merger actually occurred at January 1, 2013 or at any other historical date, nor is it reflective of our expected actual financial positions or results of operations for any future period.


Note 4.

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 Tranche 1 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. In addition, we have $3.0 billion of availability under our revolving credit facility ( see Note 9. Long-Term Debt, Financing and Capital Lease Obligations ). After March 31, 2016 we also entered into a Network Sale-Leaseback transaction and Handset


F-22

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Sale-Leaseback Tranche 2 that provided $2.2 billion and $1.1 billion , respectively in cash proceeds and a New Unsecured Financing Facility for $2.0 billion ( see Note 19. Subsequent Events ) that also provides liquidity for business operations.

Accounts Receivable Facility

Transaction Overview

Our accounts receivable facility (Receivables Facility), which provides us the opportunity to sell certain wireless service and installment receivables (as defined in the agreements) 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 March 31, 2016 , the total availability 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 March 31, 2016 was $94 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 either the ultimate collection of the underlying receivables sold to the Purchasers or upon Sprint's election to receive additional advances in cash from the Purchasers subject to the total availability under the Receivables Facility.

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 operations. The sale of future lease receivables are treated as financing transactions. Accordingly, the proceeds received are reflected as cash provided by financing activities on the consolidated statements of cash flows and the fees are recognized as "Interest expense" on the consolidated statements of operations.

Transaction Structure

Sprint contributes certain wireless service, installment and future lease receivables as well as the associated leased devices to Sprint's wholly-owned consolidated bankruptcy-remote SPEs. At Sprint's direction, the SPEs have sold, and will continue to sell, wireless service, future lease 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 repay the advances, 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 operations and other changes in the fair value of the DPP are recognized in "Selling, general and administrative" on the consolidated statements of


F-23

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


operations. Changes in the fair value of the DPP did not have a material impact on our consolidated statements of operations for the year ended March 31, 2016 . Changes to the unobservable inputs used to determine the fair value did not and 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 of $500 million 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 and January 2016, we elected to receive $300 million and $125 million , respectively, of cash, which reduced the total amount of the DPP due to Sprint. During the period from our initial sale in September to March 31, 2016 , cash collections on previously sold wireless service receivables exceeded sales of new receivables such that the DPP decreased by approximately $207 million . As of March 31, 2016 , the total amount available under the Receivables Facility associated with wireless service receivables was $43 million and the total fair value of the associated DPP was $760 million .

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, which reduced the total amount of the DPP due to Sprint. During the period from our initial sale in October to March 31, 2016 , cash collections on previously sold installment receivables exceeded sales of new receivables such that the DPP decreased by approximately $227 million . As of March 31, 2016 , there is no remaining availability under the Receivables Facility associated with installment receivables and the total fair value of the associated DPP was $395 million .

Future Lease Receivable Sales

In February and March 2016, we sold approximately $1.2 billion in total of future lease receivables in exchange for cash proceeds of $600 million . The difference between the amount sold and the cash received represents additional collateral to the lender. The sale was accounted for as a financing and the $600 million cash proceeds were, accordingly, reflected as debt in our consolidated balance sheets. As of March 31, 2016 , the amount available under the Receivables Facility associated with future lease receivables was $51 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 March 31, 2016 .

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 Tranche 1

In November 2015, Sprint entered into agreements (Handset Sale-Leaseback Tranche 1) 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, Sprint maintains the customer lease, will continue to collect and record lease revenue from the


F-24

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


customer and will remit monthly rental payments to MLS, which are recognized as "Cost of products" on the consolidated statements of operations during the respective lease-back periods.

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 operations. 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. The monthly rental payments for the devices leased back by us will approximate the amount of cash received from the associated customer leases during the weighted average 17 month lease-back period (S ee Note 13. Commitments and Contingencies ). Rent expense related to MLS totaled $277 million during the year ended March 31, 2016 and is reflected within cash flows from operations.

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 Tranche 1 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 operations. Brightstar US, Inc. (Brightstar), a 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 customer lease is still in effect. Sprint has guaranteed to MLS, the performance of the 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. 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.



F-25

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 5.

Installment Receivables

Certain subscribers have the option to purchase their devices in installments up to a 24 -month period. Short-term installment receivables were recorded in "Accounts and notes receivable, net" and long-term installment receivables were recorded in "Other assets" in the consolidated balance sheets. Beginning in October 2015, Sprint sold, derecognized and continues to sell all eligible installment receivables. As of March 31, 2016 , the amount of ineligible installment receivables were immaterial ( see Note 4. Funding Sources ) .

The following table summarizes the installment receivables as of the prior fiscal year before sales had commenced:

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 as of the prior fiscal year before sales had commenced:

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 was as follows:

Year Ended
March 31,

Year Ended
March 31,

2016

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



F-26

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 6.

Financial Instruments

The carrying amount of cash and cash equivalents, accounts and notes receivable, and accounts payable approximates fair value. Sprint did not hold any short-term investments as of March 31, 2016. Short-term investments (consisting primarily of commercial paper), totaling approximately $166 million as of March 31, 2015 , are recorded at amortized cost, and the respective carrying amounts approximate fair value. The fair value of marketable equity securities totaling $46 million and $40 million as of the periods ended March 31, 2016 and 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 and future lease receivables, 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 March 31, 2016

Estimated Fair Value Using Input Type

Quoted prices in active markets

Observable

Unobservable

Total estimated fair value

(in millions)

Current and long-term debt

$

33,645


$

21,757


$

4,474


$

2,130


$

28,361


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

$

33,245


$

27,238


$

4,906


$

1,410


$

33,554



Note 7.

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 $468 million , $1.5 billion , $2.0 billion , and $2.4 billion for the Successor years ended March 31, 2016 and 2015 , three-months ended March 31, 2014 and year ended December 31, 2013.

The following table presents the components of property, plant and equipment, and the related accumulated depreciation:

March 31,

2016

2015

(in millions)

Land

$

260


$

266


Network equipment, site costs and related software

21,500


18,990


Buildings and improvements

798


754


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

6,182


2,979


Construction in progress

1,249


2,090


Less: accumulated depreciation

(9,692

)

(5,358

)

Property, plant and equipment, net

$

20,297


$

19,721


Network equipment, site costs and related software includes switching equipment, cell site towers, site development costs, radio frequency equipment, network software, digital fiber optic cable, transport facilities and transmission-related equipment. Buildings and improvements principally consists of owned general office facilities, retail stores and leasehold improvements. Non-network internal use software, office equipment, leased devices and other primarily consists of furniture, information technology systems, equipment and vehicles, and leased devices. Construction in progress, which is not depreciated until placed in service, primarily includes materials, transmission and related equipment, labor, engineering, site development costs, interest and other costs relating to the construction and development of our network.

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


F-27

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


their device, or purchase the device. As of March 31, 2016 , substantially all 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 generally over the term of the lease.

The following table presents leased devices and the related accumulated depreciation:

March 31,

2016

2015

(in millions)

Leased devices

$

4,913


$

1,974


Less: accumulated depreciation

(1,267

)

(197

)

Leased devices, net

$

3,646


$

1,777


During the years ended March 31, 2016 and 2015 , there were non-cash transfers to leased devices of approximately $3.2 billion and $1.2 billion , respectively, along with a corresponding decrease in "Device and accessory inventory." In addition, during the year ended March 31, 2016 , we sold devices totaling $1.3 billion ( see Note 4. Funding Sources ). Non-cash accruals included in leased devices totaled approximately $159 million and $182 million as of March 31, 2016 and 2015 , respectively, for devices purchased from indirect dealers that were leased to our subscribers. Depreciation expense incurred on all leased devices for the years ended March 31, 2016 and 2015 was $1.8 billion and $206 million , respectively.

As of March 31, 2016 , the minimum estimated payments to be received for leased devices, including devices sold and leased back under Handset Sale-Leaseback Tranche 1, were as follows (in millions):

Fiscal year 2016

$

2,403


Fiscal year 2017

694


$

3,097


During the year ended March 31, 2016 , we recorded $487 million of loss on disposal of property, plant and equipment, which is included in "other, net" in our consolidated statements of operations. These losses were the result of $65 million in net losses recognized upon the sale of devices to MLS under the Handset Sale-Leaseback Tranche 1 transaction, which represented the difference between the fair value and net book value of the devices sold and $256 million in losses 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. If customers continue to not return devices, we may have material losses in future periods. In addition, we recorded $166 million of losses due to cell site construction costs and other network costs that are no longer recoverable as a result of changes in the Company's network plans.

During the Successor three-month transition period ended March 31, 2014, we recorded $75 million of loss on disposal of property, plant and equipment, which is included in "other, net" in our consolidated statements of operations, primarily due to network equipment assets that were no longer necessary as a result of changes in management's strategic plans.

Impairments

During the three-month period ended December 31, 2014, we recorded an impairment loss of $233 million , which is included in "Impairments" in our consolidated statements of operations, 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.



F-28

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 8.

Intangible Assets

Indefinite-Lived Intangible Assets

Our indefinite-lived intangible assets consists of FCC licenses, which were acquired primarily through FCC auctions and business combinations, certain of our trademarks, and goodwill. At March 31, 2016 , 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. Our Sprint and Boost Mobile trademarks have also been identified as 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 ( see Note 3. Significant Transactions ).

The following provides the activity of Indefinite-lived intangible assets within the consolidated balance sheets:

March 31,
2015

Net

Additions

March 31,
2016

(in millions)

FCC licenses

$

35,952


$

86


$

36,038


Trademarks

4,035


-


4,035


Goodwill

6,575


-


6,575


$

46,562


$

86


$

46,648


March 31,
2014

Net

Reductions

March 31,
2015

(in millions)

FCC licenses

$

36,043


$

(91

)

$

35,952


Trademarks

5,935


(1,900

)

(1

)

4,035


Goodwill

6,383


192


(2

)

6,575


$

48,361


$

(1,799

)

$

46,562


 _________________

(1)

Net reduction to trademarks for the year ended March 31, 2015 of approximately $1.9 billion was related to the impairment of the Sprint trade name. See discussion below.

(2)

Net additions to goodwill for the Successor year ended March 31, 2015 of approximately $192 million were the result of purchase price allocation adjustments, which consisted of a $232 million increase recorded during the three-month period ended March 31, 2015 to correct the amount of net deferred tax liabilities recognized in connection with the SoftBank Merger and Clearwire Acquisition and a net $40 million decrease recorded during the three-months ended June 30, 2014, which is also associated with the SoftBank Merger and Clearwire Acquisition.

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. We did not record any impairment during the year ended March 31, 2016. Since the SoftBank Merger Date, 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 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 operations.

The stock price at March 31, 2016 of $3.48 was below the net book value per share price of $4.98 . Subsequent to the balance sheet date, the stock price has decreased further to $3.44 at May 13, 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.


F-29

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


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 Sprint trade name 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 operations.

March 31, 2016

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


$

(4,045

)

$

2,878


$

6,923


$

(2,791

)

$

4,132


Other intangible assets:

Favorable spectrum leases

23 years

881


(110

)

771


884


(71

)

813


Favorable tower leases

3 to 7 years

589


(302

)

287


589


(189

)

400


Trademarks

34 years

520


(43

)

477


520


(27

)

493


Other

4 to 10 years

83


(27

)

56


72


(17

)

55


Total other intangible assets

2,073


(482

)

1,591


2,065


(304

)

1,761


Total definite-lived intangible assets

$

8,996


$

(4,527

)

$

4,469


$

8,988


$

(3,095

)

$

5,893


Fiscal Year 2016

Fiscal Year 2017

Fiscal Year 2018

Fiscal Year 2019

Fiscal Year 2020

(in millions)

Estimated amortization expense

$

1,157


$

882


$

666


$

462


$

257




F-30

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 9.

Long-Term Debt, Financing and Capital Lease Obligations

Interest Rates

Maturities

March 31,
2016

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

3.94%

2018

-


-


Export Development Canada (EDC)

4.16

-

5.91%

2017

-

2019

550


800


Secured equipment credit facilities

2.02

-

2.75%

2017

-

2021

805


610


Financing obligations

2.02

-

6.10%

2017

-

2021

828


275


Capital lease obligations and other

2.35

-

10.52%

2016

-

2023

265


127


Net premiums and debt financing costs

597


917


33,958



33,642


Less current portion

(4,690

)

(1,300

)

Long-term debt, financing and capital lease obligations

$

29,268



$

32,342


________ 

(1)

Notes of Clearwire Communications LLC are also direct obligations of Clearwire Finance, Inc. and are guaranteed by certain Clearwire subsidiaries.

As of March 31, 2016 , Sprint Corporation, the parent corporation, had $10.5 billion in aggregate principal amount of senior notes outstanding. In addition, as of March 31, 2016 , 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, the secured equipment credit facilities and installment payment obligations, totaling $21.6 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.

As of March 31, 2016 , approximately $2.1 billion aggregate principal amount of our outstanding debt, comprised of certain notes, financing and capital lease obligations, was secured by $15.8 billion of property, plant and equipment and other assets, net. Cash interest payments, net of amounts capitalized of $51 million , $56 million , $13 million and $30 million , totaled $2.4 billion , $2.3 billion , $559 million , and $1.0 billion during the Successor years ended March 31, 2016 and 2015 , the three-month transition period ended March 31, 2014 and year ended December 31, 2013 , respectively. Cash interest payments, net of amounts capitalized of $29 million and $15 million , totaled $814 million and $305 million during the Predecessor 191-day period ended July 10, 2013 and unaudited three-month period ended March 31, 2013, respectively. Our weighted average effective interest rate related to our notes and credit facilities was 6.4% , 6.1% , 6.2% , and 6.4% for the Successor years ended March 31, 2016 and 2015 , three-month transition period ended March 31, 2014, and year ended December 31, 2013 , respectively, and 8.9% and 7.1% for the Predecessor 191-day period ended July 10, 2013 and unaudited three-month period ended March 31, 2013, respectively.


F-31

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Notes

As of March 31, 2016 , 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 March 31, 2016 , $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 March 31, 2016 , $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 March 31, 2016 , $300 million aggregate 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 Clearwire Acquisition, 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 March 31, 2016 , approximately $320 million in letters of credit were outstanding under this credit facility, including the letter of credit required by the Report and Order (see Note 13. 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 March 31, 2016 . 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), may not 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 . 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 March 31, 2016 , 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 $254 million during the year ended March 31, 2016 . The balance outstanding at March 31, 2016 was $254 million .


F-32

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


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 Solutions and Networks US LLC, USA. 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 year ended March 31, 2016 , we drew $208 million on the facility, and we made principal repayments totaling $56 million , resulting in a total principal amount of $196 million outstanding at March 31, 2016 .

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 Telecommunications America, LLC. 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 year ended March 31, 2016 , we drew $266 million on the facility, resulting in a total principal amount of $323 million outstanding at March 31, 2016 .

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 USA Inc. During the year ended March 31, 2016 , we drew $32 million on the facility resulting in a total principal amount of $32 million outstanding at March 31, 2016 .

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 during 2008. 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, net on our consolidated balance sheets 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 for the use of wireless network equipment.

In February and March 2016, we sold approximately $1.2 billion in total of future amounts due from customers who lease certain devices from us in exchange for cash proceeds of $600 million through our Accounts Receivable Facility ( see Note 4. Funding Sources ). The difference between the amount sold and the cash received represents additional collateral to the lender. The sale was accounted for as a financing and the $600 million cash proceeds were, accordingly, reflected as debt in our consolidated balance sheets. The associated leased devices continue to be reported as part of our property, plant and equipment, net on our consolidated balance sheets and continue to be depreciated over their estimated useful life.

Covenants

Certain indentures and other agreements also 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 March 31, 2016 , 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 .


F-33

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Future Maturities of Long-Term Debt, Financing and Capital Lease Obligations

Aggregate amount of maturities for long-term debt, financing and capital lease obligations outstanding as of March 31, 2016 , were as follows (in millions):

Fiscal year 2016

$

4,615


Fiscal year 2017

2,065


Fiscal year 2018

3,201


Fiscal year 2019

3,177


Fiscal year 2020

1,625


Fiscal year 2021 and thereafter

18,678


33,361


Net premiums and debt financing costs

597


$

33,958



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.

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

March 31,
2016

(in millions)

Lease exit costs

$

291


$

156


(1)

$

(109

)

$

338


Severance costs

119


216


(2)

(185

)

150


Access exit costs

44


19


(3)

(26

)

37


$

454


$

391


$

(320

)

$

525


 _________________

(1)

We recognized costs of $176 million (Wireless only) for the Successor year ended March 31, 2016, which were offset by $20 million of income (Wireless only) resulting from a revision to our estimate of a previously recorded reserve.

(2)

For the Successor year ended March 31, 2016, we recognized costs of $216 million ( $191 million Wireless, $25 million Wireline).

(3)

For the Successor year ended March 31, 2016, $2 million (solely attributable to Wireline) was recognized as "Cost of services" and $17 million (solely attributable to Wireless) was recognized as "Severance and exit costs."

March 31,
2014

Net

Expense

Cash Payments

and Other

March 31,
2015

(in millions)

Lease exit costs

$

650


$

(28

)

(4)

$

(331

)

$

291


Severance costs

197


253


(5)

(331

)

119


Access exit costs

124


38


(6)

(118

)

44


$

971


$

263


$

(780

)

$

454


 _________________

(4)

We recognized costs of $13 million ( $12 million Wireless and $1 million Wireline) for the year ended March 31, 2015, which were offset by $41 million of income (Wireless only) resulting from a revision to our estimate of a previously recorded reserve.

(5)

For the Successor year ended March 31, 2015, we recognized costs of $253 million ( $218 million Wireless, $35 million Wireline).

(6)

For the Successor year ended March 31, 2015, we recognized costs of $38 million ( $33 million Wireless, $5 million Wireline).

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 may 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 impairments, and accelerated depreciation, among others.



F-34

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 11.

Supplemental Financial Information

March 31,

March 31,

2016

2015

(in millions)

Accounts and notes receivable, net

Trade

$

899


$

1,037


Unbilled trade and other

239


1,457


Less allowances for doubtful accounts and deferred interest

(39

)

(204

)

$

1,099



$

2,290


Prepaid expenses and other current assets

Prepaid expenses

$

366


$

401


Deferred purchase price for Receivables Facility

1,155


1,198


Deferred charges and other

399


291


$

1,920



$

1,890


Other assets

Deferred purchase price for Handset Sale-Leaseback Tranche 1

$

116


$

-


Unbilled trade installment receivables, net

-


361


Investments

187


151


Other

425


376


$

728


$

888


Accounts payable (1)

Trade

$

2,567


$

3,786


Accrued interconnection costs

142


198


Capital expenditures and other

190


363


$

2,899



$

4,347


Accrued expenses and other current liabilities

Deferred revenues

$

1,456


$

1,385


Accrued taxes

232


238


Payroll and related

339


589


Severance, lease and other exit costs

288


223


Accrued interest

532


525


Accrued capital expenditures

149


705


Other

1,378


1,628


$

4,374



$

5,293


Other liabilities

Deferred rental income-communications towers

$

218


$

229


Deferred rent

478


366


Asset retirement obligations

550


584


Unfavorable lease liabilities

658


856


Post-retirement benefits and other non-current employee related liabilities

994


987


Other

1,104


929


$

4,002



$

3,951


______________________ 

(1)

Includes liabilities in the amounts of $66 million and $90 million as of March 31, 2016 and 2015 , respectively, for checks issued in excess of associated bank balances but not yet presented for collection.



F-35

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 12.

Income Taxes

Sprint Corporation is the parent corporation of an affiliated group of corporations which join in the filing of a U.S. federal consolidated income tax return. Additionally, we file income tax returns in each state jurisdiction which imposes an income tax. In certain state jurisdictions, Sprint and its subsidiaries intend to file combined state tax returns with certain other SoftBank affiliates beginning with the year ended March 31, 2016. State tax expense or benefit has been determined utilizing the separate return approach as if Sprint and its subsidiaries file on a stand-alone basis. We also file income tax returns in a number of foreign jurisdictions. However, our foreign income tax activity has been immaterial. Cash paid or received for income tax purposes was insignificant for all Successor and Predecessor periods presented.

Income tax expense consists of the following:

Successor

Predecessor

Year Ended
March 31,

Year Ended
March 31,

Three Months Ended
March 31,

Year Ended

December 31,

191 Days Ended

July 10,

Three Months Ended
March 31,

2016

2015

2014

2013

(Unaudited)

2013

2013

2013

(Unaudited)

(in millions)

Current income tax (expense) benefit

Federal

$

13


$

5


$

-


$

(2

)

$

1


$

2


$

(8

)

State

(30

)

(39

)

(10

)

-


(13

)

(17

)

(6

)

Total current income tax (expense) benefit

(17

)


(34

)

(10

)


(2

)


(12

)

(15

)


(14

)

Deferred income tax (expense) benefit

Federal

(206

)

491


(48

)

1


(46

)

(1,402

)

(19

)

State

83


118


2


-


14


(184

)

(5

)

Total deferred income tax (expense) benefit

(123

)


609


(46

)


1



(32

)

(1,586

)


(24

)

Foreign income tax expense

(1

)

(1

)

-


-


(1

)

-


-


Total income tax (expense) benefit

$

(141

)


$

574


$

(56

)

$

(1

)


$

(45

)

$

(1,601

)


$

(38

)


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:

Successor

Predecessor

Year Ended
March 31,

Year Ended
March 31,

Three Months Ended
March 31,

Year Ended

December 31,

191 Days Ended

July 10,

Three Months Ended
March 31,

2016

2015

2014

2013

(Unaudited)

2013

2013

2013

(Unaudited)

(in millions)

Income tax (expense) benefit at the federal statutory rate

$

649


$

1,372


$

33


$

3


$

635


$

(155

)

$

212


Effect of:

State income taxes, net of federal income tax effect

38


124


(4

)

-


47


(18

)

16


State law changes, net of federal income tax effect

20


4


5


-


10


-


-


(Increase) reduction in liability for unrecognized tax benefits

(4

)

1


-


-


2


(7

)

-


Tax benefit from organizational restructuring

90


-


-


-


-


-


-


Change in valuation allowance

(939

)

(911

)

(82

)

-


(708

)

(1,410

)

(265

)

Other, net

5


(16

)

(8

)

(4

)

(31

)

(11

)

(1

)

Income tax (expense) benefit

$

(141

)

$

574


$

(56

)

$

(1

)

$

(45

)

$

(1,601

)

$

(38

)

Effective income tax rate

(7.6

)%

14.6

%

(58.9

)%

(12.5

)%

(2.5

)%

361.4

%

(6.3

)%


F-36

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Income tax (expense) benefit allocated to other items was as follows:

Successor

Predecessor

Year Ended
March 31,

Year Ended
March 31,

Three Months Ended
March 31,

Year Ended
December 31,

191 Days Ended

July 10,

Three Months Ended
March 31,

2016

2015

2014

2013

2013

2013

(Unaudited)

(in millions)

Unrecognized net periodic pension and other postretirement benefit cost (1)

$

-


$

-


$

-


$

(58

)

$

(18

)

$

(10

)

Unrealized holding gains/losses on securities (1)

$

-


$

-


$

(1

)

$

(3

)

$

-


$

(1

)

_______________

(1)

These amounts have been recognized in accumulated other comprehensive loss.

Deferred income taxes are recognized for the temporary differences between the carrying amounts of our assets and liabilities for financial statement purposes and their tax bases. Deferred tax assets are also recorded for operating loss, capital loss and tax credit carryforwards. The sources of the differences that give rise to the deferred income tax assets and liabilities as of March 31, 2016 and 2015 , along with the income tax effect of each, were as follows:

March 31, 2016

March 31, 2015

Long-Term (1)

Current

Long-Term

(in millions)

Deferred tax assets

Net operating loss carryforwards

$

8,057


$

-


$

8,155


Tax credit carryforwards

384


-


381


Capital loss carryforwards

83


-


84


Property, plant and equipment

1,230


-


261


Debt obligations

-


-


419


Deferred rent

438


-


470


Pension and other postretirement benefits

378


-


385


Accruals and other liabilities

1,376


637


561


11,946


637


10,716


Valuation allowance

(9,793

)

(509

)

(8,371

)

2,153


128


2,345


Deferred tax liabilities


FCC licenses

12,738


-


12,558


Trademarks

1,718


-


1,725


Intangibles

1,166


-


1,658


Debt obligations

58


-


-


Other

432


66


302


16,112


66


16,243


Current deferred tax asset

$

62


Long-term deferred tax liability

$

13,959


$

13,898


_______________

(1)

See Note 2. Summary of Significant Accounting Policies and Other Information for early adoption of guidance regarding Balance Sheet Classification of Deferred Taxes.

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 of $939 million , $911 million , $82 million and $708 million for the Successor years ended March 31, 2016 and 2015 , three-month transition period ended March 31, 2014 and year ended December 31, 2013, respectively, and $1.4 billion and $265 million for the


F-37

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Predecessor 191-day period ended July 10, 2013 and unaudited three-month period ended March 31, 2013, respectively, on deferred tax assets primarily related to losses incurred during the period that are not currently realizable and expenses recorded during the period that are not currently deductible for income tax purposes. The remaining increase of $272 million in the carrying amount of the valuation allowance for the Successor year ended March 31, 2015 is primarily related to amounts recorded to other comprehensive (loss) income related to the pension net actuarial loss and net impacts of acquisition accounting for the SoftBank Merger and Clearwire Acquisition. We do not expect to record significant tax benefits on future net operating losses until our circumstances justify the recognition of such benefits.

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 $141 million for the Successor year ended March 31, 2016 was primarily attributable to tax expense resulting from taxable temporary differences from amortization of FCC licenses, partially offset by tax benefits from the reversal of state income tax valuation allowance on deferred tax assets and changes in state income tax laws enacted during the year. As a result of organizational restructuring, which drove a sustained increase in the profitability of specific legal entities, we revised our estimate regarding the realizability of the involved entities' deferred state tax assets and recorded a state tax benefit of $90 million . Income tax benefit of $574 million for the Successor year ended March 31, 2015 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 amortization of FCC licenses during the period. Income tax expense of $56 million and $45 million for the Successor three-month transition period ended March 31, 2014, and year ended December 31, 2013, respectively, and $38 million for the Predecessor unaudited three-month period ended March 31, 2013 was primarily attributable to taxable temporary differences from amortization of FCC licenses. Income tax expense of $1.6 billion for the Predecessor 191-day period ended July 10, 2013, was primarily attributable to taxable temporary differences from the $2.9 billion gain on the previously-held equity interests in Clearwire. The gain on the previously-held equity interests in Clearwire was principally attributable to the increase in the fair value of FCC licenses held by Clearwire. 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.

During the Successor years ended March 31, 2016 and 2015 , three-month transition period ended March 31, 2014 and year ended December 31, 2013, and Predecessor 191-day period ended July 10, 2013 and unaudited three-month period ended March 31, 2013, we generated $343 million , $398 million , $110 million , $263 million , $238 million , and $96 million , respectively, of foreign income, which is included in (loss) income before income taxes on the consolidated statements of operations. We have no material unremitted earnings of foreign subsidiaries.

As of March 31, 2016 , we had federal operating loss carryforwards of $19.6 billion , state operating loss carryforwards of $20.8 billion and foreign net operating loss carryforwards of $821 million . Related to these loss carryforwards, we have recorded federal tax benefits of $6.9 billion , net state tax benefits of $969 million and foreign tax benefits of $273 million before consideration of the valuation allowances. Approximately $1.1 billion of the federal net operating loss carryforwards expire between fiscal years 2016 and 2020. The remaining $18.5 billion expire in varying amounts between fiscal years 2021 and 2034. The state operating loss carryforwards expire in varying amounts through fiscal year 2035. Foreign operating loss carryforwards of $427 million do not expire. The remaining foreign operating loss carryforwards expire in varying amounts starting in fiscal year 2016.

In addition, we had available, for income tax purposes, federal alternative minimum tax net operating loss carryforwards of $20.6 billion and state alternative minimum tax net operating loss carryforwards of $4.8 billion . The loss carryforwards expire in varying amounts through fiscal year 2034. We also had available capital loss carryforwards of $217 million . Related to these capital loss carryforwards are tax benefits of $83 million . Approximately $213 million of the capital loss carryforwards expire prior to fiscal year 2017. The remaining $4 million expire in varying amounts between fiscal years 2017 and 2018.


F-38

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


We also had available $459 million of federal and state income tax credit carryforwards as of March 31, 2016 . Included in this amount are $3 million of income tax credits which expire prior to fiscal year 2017 and $354 million which expire in varying amounts between fiscal years 2017 and 2035. The remaining $102 million do not expire.

Unrecognized tax benefits are established for uncertain tax positions based upon estimates regarding potential future challenges to those positions at the largest amount that is greater than fifty percent likely of being realized upon ultimate settlement. These estimates are updated at each reporting date based on the facts, circumstances and information available. Interest related to these unrecognized tax benefits is recognized in interest expense. Penalties are recognized as additional income tax expense. The unrecognized tax benefits attributable to uncertain tax positions were $166 million and $163 million , as of the March 31, 2016 and 2015 , respectively. As of March 31, 2016 , the unrecognized tax benefits included items that would favorably affect the income tax provision by $155 million , if recognized without an offsetting valuation allowance adjustment. The accrued liability for income tax related interest and penalties was insignificant for all periods presented.

A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:

Years Ended

March 31,

2016

2015

(in  millions)

Balance at beginning of period

$

163


$

160


Additions based on current year tax positions

-


5


Additions based on prior year tax positions

5


3


Reductions for prior year tax positions

-


(3

)

Reductions for settlements

-


(1

)

Reductions for lapse of statute of limitations

(2

)

(1

)

Balance at end of period

$

166


$

163


Settlement agreements were reached with the Appeals or Exam division of the Internal Revenue Service (IRS) for examination issues in dispute for years prior to 2010. The issues were immaterial to our consolidated financial statements. As of March 31, 2016 , there are no federal income tax examinations being handled by the IRS Exam division nor are there any issues being handled by the IRS Appeals division.

We are involved in multiple state income tax examinations related to various years beginning with 1996, which are in various stages of the examination, administrative review or appellate process. Based on our current knowledge of the examinations, administrative reviews and appellate processes, we believe it is reasonably possible a number of our uncertain tax positions may be resolved during the next twelve months which could result in a reduction of up to $20 million in our unrecognized tax benefits.

The federal and state statutes of limitations for assessment of tax liability generally lapse three and four years, respectively, after the date the tax returns are filed. However, income tax attributes that are carried forward, such as net operating loss carryforwards, may be challenged and adjusted by taxing authorities at any time prior to the expiration of the statute of limitations for the tax year in which they are utilized.


Note 13.

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 district court granted final approval of a settlement in August 2015, which did not have a material impact to our financial statements. Five stockholder derivative suits related to this 2009 stockholder suit 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


F-39

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


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 we have reached an agreement in principle to settle the matters, by agreeing to some governance provisions and by paying plaintiffs' attorneys fees in an immaterial amount. The hearing to approve the settlement has been set for May 26, 2016.

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. Our petition for certiorari to the U.S. Supreme Court on grounds of federal preemption is pending. We have accrued $180 million during the year ended March 31, 2016 associated with this matter. We will continue to defend this matter vigorously and we do not expect the resolution of this matter to have a material adverse 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 have been stayed pending resolution of the Attorney General's suit. 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, discovery is substantially complete, and our motion for summary judgment is pending. 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. Trial is scheduled to begin in October 2016. 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. 


F-40

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


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 under the Report and Order is $2.8 billion . 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 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 March 31, 2016 . 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 $75 million during the year ended March 31, 2016 . 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 March 31, 2016 have exceeded $2.8 billion , not all of those costs have been reviewed and accepted as eligible by the transition administrator. During the year ended March 31, 2015, 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.

Future Minimum Commitments

As of March 31, 2016 , the minimum estimated amounts due under operating leases, spectrum leases and service credits, handset sale-leaseback tranche 1 and purchase orders and other commitments were as follows:

Future Minimum Commitments

Total

Fiscal Year 2016

Fiscal Year 2017

Fiscal Year 2018

Fiscal Year 2019

Fiscal Year 2020

Fiscal Year
2021 and thereafter

(in millions)

Operating leases

$

14,078


$

2,195


$

2,148


$

2,072


$

1,958


$

1,820


$

3,885


Spectrum leases and service credits

6,707


212


219


221


224


226


5,605


Handset sale-leaseback tranche 1

651


580


71


-


-


-


-


Purchase orders and other commitments

11,224


7,192


1,428


951


499


354


800


Total

$

32,660


$

10,179


$

3,866


$

3,244


$

2,681


$

2,400


$

10,290


Operating Leases

We lease various equipment, office facilities, retail outlets and kiosks, switching facilities and cell sites under operating leases. The non-cancelable portion of these leases generally ranges from monthly up to 15  years. These leases, with few exceptions, provide for automatic renewal options and escalations that are either fixed or based on the consumer price


F-41

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


index. Any rent abatements, along with rent escalations, are included in the computation of rent expense calculated on a straight-line basis over the lease term. Our lease term for most leases includes the initial non-cancelable term plus at least one renewal period, if the non-cancelable term is less than ten years, as the exercise of the related renewal option or options is reasonably assured. Our cell site leases generally provide for an initial non-cancelable term of five to twelve years with up to 5 renewal options for five years each.

Our rental commitments for operating leases, including lease renewals that are reasonably assured, consisted mainly of leases for cell and switch sites, real estate, information technology and network equipment and office space. Total rental expense was $2.9 billion , $2.6 billion , $653 million and $1.3 billion for the Successor years ended March 31, 2016 and 2015 , the three-month transition period ended March 31, 2014 and year ended December 31, 2013 , respectively, and $1.0 billion and $483 million for the Predecessor 191-day period ended July 10, 2013 and unaudited three-month period ended March 31, 2013, respectively.

Spectrum Leases and Service Credits

Certain of the spectrum leases provide for minimum lease payments, additional charges, renewal options and escalation clauses. Leased spectrum agreements generally have terms of up to 30 years. We expect that all renewal periods in our spectrum leases will be renewed by us.

We also have commitments to provide services to certain lessors, and to reimburse lessors for certain capital equipment and third-party service expenditures over the term of the lease. We accrue a monthly obligation for the services and equipment based on the total estimated available service credits divided by the term of the lease. The obligation is reduced by services provided and as actual invoices are presented and paid to the lessors. During the period ended March 31, 2016 , we satisfied $4 million related to these commitments. The maximum remaining commitment at March 31, 2016 was $86 million and is expected to be incurred over the term of the related lease agreements, which generally range from 15 to 30 years.

Purchase Orders and Other Commitments

We are a party to other commitments, which includes, among other things, service, spectrum, network equipment, devices, asset retirement obligations and other executory contracts in connection with conducting our business. Amounts actually paid under some of these agreements will likely be higher due to variable components of these agreements. The more significant variable components that determine the ultimate obligation owed include such items as hours contracted, subscribers and other factors. In addition, we are a party to various arrangements that are conditional in nature and obligate us to make payments only upon the occurrence of certain events, such as the delivery of functioning software or a product. Because it is not possible to predict the timing or amounts that may be due under these conditional arrangements, no such amounts have been included in the table above.


Note 14.

Stockholders' Equity and Per Share Data

Our certificate of incorporation authorizes 10,020,000,000 shares of capital stock as follows:

9,000,000,000 shares of common stock, par value $0.01 per share;

1,000,000,000 shares of non-voting common stock, par value $0.01 per share; and

20,000,000 shares of preferred stock, par value $0.0001 per share.

Classes of Common Stock

Voting Common Stock

The holders of our common stock are entitled to one vote per share on all matters submitted for action by the stockholders. There were approximately 4.0 billion shares of common stock outstanding as of March 31, 2016 .

Treasury Shares

Shares of common stock repurchased by us are recorded at cost as treasury shares and result in a reduction of stockholders' equity. We reissue treasury shares as part of our stockholder approved stock-based compensation programs, as well as upon conversion of outstanding securities that are convertible into common stock. When shares are reissued, we determine the cost using the FIFO method.


F-42

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Dividends

We did not declare any dividends on our common shares for all periods presented in the consolidated financial statements. We are currently restricted from paying cash dividends by the terms of our revolving bank credit facility, EDC Agreement and all other equipment credit facilities (see Note 9. Long-Term Debt, Financing and Capital Lease Obligations) .

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of tax were as follows:

March 31,

2016

2015

(in millions)

Unrecognized net periodic pension and postretirement benefit cost

$

(407

)

$

(388

)

Unrealized net gains related to investments

-


1


Foreign currency translation adjustments

(32

)

(21

)

Accumulated other comprehensive loss

$

(439

)

$

(408

)

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 73 million , 56 million , 60 million and 70 million as of the Successor years ended March 31, 2016 and 2015 , three-month transition period ended March 31, 2014 , and year ended December 31, 2013 , respectively, and 61 million and 74 million shares for the Predecessor 191-day period ended July 10, 2013 and unaudited three-month period ended March 31, 2013, respectively. In addition, as of all periods subsequent to the SoftBank Merger, all 55 million shares issuable under the warrant which was issued to SoftBank at the close of the SoftBank Merger were treated as potentially dilutive securities but did not impact our computation of dilutive weighted average number of shares outstanding as their effect would have been antidilutive. The warrant is exercisable at $5.25 per share at the option of Softbank, in whole or in part, at any time within the five -year term.


Note 15.

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 (handset 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.


F-43

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Segment financial information is as follows:

Successor

Statement of Operations Information

Wireless

Wireline

Corporate,
Other and
Eliminations

Consolidated

(in millions)

Year Ended March 31, 2016

Net operating revenues

$

30,377


$

1,790


$

13


$

32,180


Inter-segment revenues (1)

-


592


(592

)

-


Total segment operating expenses

(22,326

)

(2,290

)

582


(24,034

)

Segment earnings

$

8,051


$

92


$

3


8,146


Less:

Depreciation

(5,794

)

Amortization

(1,294

)

Other, net (3)

(748

)

Operating income

310


Interest expense

(2,182

)

Other income, net

18


Loss before income taxes

$

(1,854

)

Statement of Operations Information

Wireless

Wireline

Corporate,
Other and
Eliminations

Consolidated

(in millions)

Year Ended March 31, 2015

Net operating revenues

$

32,327


$

2,191


$

14


$

34,532


Inter-segment revenues (1)

-


623


(623

)

-


Total segment operating expenses

(26,433

)

(2,701

)

602


(28,532

)

Segment earnings

$

5,894


$

113


$

(7

)

6,000


Less:

Depreciation

(3,797

)

Amortization

(1,552

)

Impairments (2)

(2,133

)

Other, net (3)

(413

)

Operating loss

(1,895

)

Interest expense

(2,051

)

Other income, net

27


Loss before income taxes

$

(3,919

)


F-44

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Successor

Statement of Operations Information

Wireless

Wireline

Corporate,

Other and

Eliminations

Consolidated

(in millions)

Three Months Ended March 31, 2014

Net operating revenues

$

8,254


$

617


$

4


$

8,875


Inter-segment revenues (1)

-


153


(153

)

-


Total segment operating expenses

(6,417

)

(758

)

144


(7,031

)

Segment earnings

$

1,837


$

12


$

(5

)

1,844


Less:

Depreciation

(868

)

Amortization

(429

)

Other, net (3)

(127

)

Operating income

420


Interest expense

(516

)

Other income, net

1


Loss before income taxes

$

(95

)

Statement of Operations Information

Wireless

Wireline

Corporate,
Other and
Eliminations

Consolidated

(in millions)

Three Months Ended March 31, 2013 (unaudited)

Net operating revenues

$

-


$

-


$

-


$

-


Inter-segment revenues (1)

-


-


-


-


Total segment operating expenses

-


-


(14

)

(14

)

Segment earnings

$

-


$

-


$

(14

)

(14

)

Other income, net

6


Loss before income taxes

$

(8

)

Statement of Operations Information

Wireless

Wireline

Corporate,

Other and

Eliminations

Consolidated

(in millions)

Year Ended December 31, 2013

Net operating revenues

$

15,642


$

1,240


$

9


$

16,891


Inter-segment revenues (1)

-


396


(396

)

-


Total segment operating expenses

(13,464

)

(1,414

)

353


(14,525

)

Segment earnings

$

2,178


$

222


$

(34

)

2,366


Less:

Depreciation

(2,026

)

Amortization

(908

)

Other, net (3)

(402

)

Operating loss

(970

)

Interest expense

(918

)

Other income, net

73


Loss before income taxes

$

(1,815

)


F-45

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Successor

Other Information

Wireless

Wireline

Corporate and

Other

Consolidated

(in millions)

As of and for the year ended March 31, 2016

Capital expenditures

$

6,381


$

279


$

312


$

6,972


Total assets

$

73,408


$

1,255


$

4,312


$

78,975


As of and for the year ended March 31, 2015

Capital expenditures

$

5,442


$

275


$

287


$

6,004


Total assets

$

75,533


$

1,262


$

6,046


$

82,841


As of and for the three months ended March 31, 2014

Capital expenditures

$

1,343


$

79


$

66


$

1,488


Total assets

$

75,044


$

1,499


$

8,006


$

84,549


As of March 31, 2013

Total assets

$

-


$

-


$

3,122


$

3,122


As of and for the year ended December 31, 2013

Capital expenditures

$

3,535


$

153


$

159


$

3,847


Total assets

$

75,121


$

1,548


$

9,284


$

85,953


Predecessor

Statement of Operations Information

Wireless

Wireline

Corporate,

Other and

Eliminations

Consolidated

(in millions)

191 Days Ended July 10, 2013

Net operating revenues

$

17,125


$

1,471


$

6


$

18,602


Inter-segment revenues (1)

-


430


(430

)

-


Total segment operating expenses

(14,355

)

(1,629

)

425


(15,559

)

Segment earnings

$

2,770


$

272


$

1


3,043


Less:

Depreciation

(3,098

)

Amortization

(147

)

Other, net (3)

(683

)

Operating loss

(885

)

Interest expense

(1,135

)

Equity in losses of unconsolidated investments, net

$

(482

)

Gain on previously-held equity interests

2,926


2,444


Other income, net

19


Income before income taxes

$

443



F-46

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Statement of Operations Information

Wireless

Wireline

Corporate,

Other and

Eliminations

Consolidated

(in millions)

Three Months Ended March 31, 2013 (unaudited)

Net operating revenues

$

8,089


$

702


$

2


$

8,793


Inter-segment revenues (1)

-


191


(191

)

-


Total segment operating expenses

(6,694

)

(765

)

190


(7,269

)

Segment earnings

$

1,395


$

128


$

1


1,524


Less:

Depreciation

(1,422

)

Amortization

(70

)

Other, net (3)

(3

)

Operating income

29


Interest expense

(432

)

Equity in losses of unconsolidated investments, net

$

(202

)

(202

)

Loss before income taxes

$

(605

)

Other Information

Wireless

Wireline

Corporate and

Other

Consolidated

(in millions)

Capital expenditures for the 191 days ended July 10, 2013

$

2,840


$

174


$

126


$

3,140


Capital expenditures for the three months ended March 31, 2013 (unaudited)

$

1,270


$

64


$

47


$

1,381


 _________________

(1)

Inter-segment revenues consist primarily of wireline services provided to the Wireless segment for resale to or use by wireless subscribers.

(2)

Impairments for the Successor year ended March 31, 2015 consist of a $1.9 billion trade name impairment related to the Wireless segment and a $233 million impairment related to Wireline long-lived assets.

(3)

Other, net for the Successor year ended March 31, 2016 consists of $409 million of severance and exit costs, combined with $193 million for legal reserves related to various pending legal suits and proceedings and a $166 million loss on disposal of property, plant and equipment related to cell site construction costs and other network costs that are no longer recoverable as a result of changes in the Company's network plans, partially offset by $20 million of income resulting from a revision to our estimate of a previously recorded reserve . Losses totaling approximately $321 million relating to the write-off of leased devices associated with lease cancellations of $256 million and the loss on sale of devices to MLS under the Handset Sale-Leaseback Tranche 1 transaction for $65 million were excluded from Other, net and included within Wireless segment earnings. Other, net for the Successor year ended March 31, 2015 consists of $304 million of severance and exit costs, combined with $91 million for legal reserves related to various pending legal suits and proceedings and $59 million for a partial pension settlement, partially offset by $41 million of income resulting from a revision to our estimate of a previously recorded reserve . Other, net for the Successor three-month transition period ended March 31, 2014 consists of $52 million of severance and exit costs and a $75 million loss on disposal of property, plant and equipment related to network equipment assets no longer necessary for management's strategic plans. Other, net for the Successor year ended December 31, 2013 consists of $309 million of severance and exit costs and $100 million of business combination fees paid to unrelated parties in connection with the transactions with SoftBank and Clearwire ( $75 million included in our corporate segment and $25 million included in our wireless segment and classified as selling, general and administrative expenses), partially offset by $7 million of insurance reimbursement towards 2012 hurricane-related charges (included in our wireless segment and classified as a contra-expense in cost of services expense). Other, net for the Predecessor 191-day period ended July 10, 2013 and unaudited three-month period ended March 31, 2013 consists of $652 million and $25 million , respectively, of severance and exit costs, partially offset by $22 million of favorable developments in connection with an E911 regulatory tax-related contingency. Other, net for the Predecessor 191-day period ended July 10, 2013 also includes $53 million of business combination fees paid to unrelated parties in connection with the transactions with SoftBank and Clearwire (included in our corporate segment and classified as selling, general and administrative expenses).


F-47

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Successor

Operating Revenues by Service and Products

Wireless

Wireline

Corporate,
Other and
Eliminations
(1)

Consolidated

(in millions)

Year Ended March 31, 2016

Wireless services

$

24,627


$

-


$

-


$

24,627


Wireless equipment

5,006


-


-


5,006


Voice

-


840


(329

)

511


Data

-


171


(69

)

102


Internet

-


1,284


(190

)

1,094


Other

744


87


9


840


Total net operating revenues

$

30,377


$

2,382


$

(579

)

$

32,180


Operating Revenues by Service and Products

Wireless

Wireline

Corporate,
Other and
Eliminations
(1)

Consolidated

(in millions)

Year Ended March 31, 2015

Wireless services

$

26,544


$

-


$

-


$

26,544


Wireless equipment

4,990


-


-


4,990


Voice

-


1,174


(365

)

809


Data

-


213


(88

)

125


Internet

-


1,353


(165

)

1,188


Other

793


74


9


876


Total net operating revenues

$

32,327


$

2,814


$

(609

)

$

34,532


Wireless

Wireline

Corporate,

Other and

Eliminations (1)

Consolidated

(in millions)

Three Months Ended March 31, 2014

Wireless services

$

7,096


$

-


$

-


$

7,096


Wireless equipment

999


-


-


999


Voice

-


352


(88

)

264


Data

-


62


(26

)

36


Internet

-


345


(37

)

308


Other

159


11


2


172


Total net operating revenues

$

8,254


$

770


$

(149

)

$

8,875


Wireless

Wireline

Corporate,

Other and

Eliminations (1)

Consolidated

(in millions)

Year Ended December 31, 2013

Wireless services

$

13,579


$

-


$

-


$

13,579


Wireless equipment

1,797


-


-


1,797


Voice

-


719


(240

)

479


Data

-


138


(69

)

69


Internet

-


747


(81

)

666


Other

266


32


3


301


Total net operating revenues

$

15,642


$

1,636


$

(387

)

$

16,891



F-48

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Predecessor

Operating Revenues by Service and Products

Wireless

Wireline

Corporate,

Other and

Eliminations (1)

Consolidated

(in millions)

191 Days Ended July 10, 2013

Wireless services

$

15,139


$

-


$

-


$

15,139


Wireless equipment

1,707


-


-


1,707


Voice

-


771


(236

)

535


Data

-


188


(93

)

95


Internet

-


913


(100

)

813


Other

279


29


5


313


Total net operating revenues

$

17,125


$

1,901


$

(424

)

$

18,602


Wireless

Wireline

Corporate,

Other and

Eliminations (1)

Consolidated

(in millions)

Three Months Ended March 31, 2013 (unaudited)

Wireless services

$

7,143


$

-


$

-


$

7,143


Wireless equipment

813


-


-


813


Voice

-


352


(99

)

253


Data

-


94


(46

)

48


Internet

-


434


(47

)

387


Other

133


13


3


149


Total net operating revenues

$

8,089


$

893


$

(189

)

$

8,793


_______________

(1)

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


Note 16.

Quarterly Financial Data (Unaudited)

Quarter

1st

2nd

3rd

4th

(in millions, except per share amounts)

Fiscal year 2015

Net operating revenues

$

8,027


$

7,975


$

8,107


$

8,071


Operating income (loss)

$

501


$

(2

)

$

(197

)

$

8


Net loss

$

(20

)

$

(585

)

$

(836

)

$

(554

)

Basic and diluted loss per common share (1)

$

(0.01

)

$

(0.15

)

$

(0.21

)

$

(0.14

)

Fiscal year 2014

Net operating revenues

$

8,789


$

8,488


$

8,973


$

8,292


Operating income (loss)

$

519


$

(192

)

$

(2,540

)

$

318


Net income (loss)

$

23


$

(765

)

$

(2,379

)

$

(224

)

Basic and diluted income (loss) per common share (1)

$

0.01


$

(0.19

)

$

(0.60

)

$

(0.06

)

_____________

(1)

The sum of the quarterly earnings per share amounts may not equal the annual amounts because of the changes in the weighted average number of shares outstanding during the year.



F-49

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 17.

Related-Party Transactions

Clearwire Related-Party Transactions

Immediately prior to the Clearwire Acquisition, Sprint Communications held approximately 50.1% of non-controlling voting interest and a 6.0% non-controlling economic interest in Clearwire Corporation as well as a 44.1% non-controlling economic interest in Clearwire Communications LLC for which the carrying value totaled $325 million . Prior to the close of the Clearwire Acquisition, we applied equity method accounting to the investment in Clearwire.

Equity in losses from Clearwire were $482 million and $202 million for the Predecessor 190-day period ended July 9, 2013 and Predecessor unaudited three-month period ended March 31, 2013, respectively. The equity in losses from our investment in Clearwire consisted of our share of Clearwire's net loss and other adjustments, if any, such as non-cash impairment of our investment, gains or losses associated with the dilution of our ownership interest resulting from Clearwire's equity issuances, derivative losses associated with the change in fair value of the embedded derivative included in exchangeable notes between Clearwire and Sprint, and other items recognized by Clearwire Corporation that did not affect our economic interest. Sprint's equity in losses for the Predecessor 190-day period ended July 9, 2013, include a $65 million derivative loss associated with the change in fair value of the embedded derivative.

Subsequent to the Clearwire Acquisition, Clearwire is consolidated as a wholly-owned subsidiary of Sprint. In connection with the acquisition, Sprint recorded a pre-tax gain of approximately $2.9 billion to "Gain on previously-held equity interests" in its Predecessor consolidated statements of operations immediately preceding the Clearwire Acquisition resulting from the difference between the estimated fair value of the interests owned prior to the acquisition ( $5.00 per share offer price less an estimated control premium of approximately $0.60 ) and the carrying value of approximately $325 million for those previously-held equity interests.

Cost of services included in our consolidated statements of operations related to our agreement to purchase 4G services from Clearwire totaled $207 million and $101 million for the Predecessor 190-day period ended July 9, 2013 and Predecessor unaudited three-month period ended March 31, 2013, respectively.

Summarized financial information for Clearwire for the 190-day period ended July 9, 2013, which preceded the Clearwire Acquisition, is as follows:

190 Days Ended

July 9,

2013

(in millions)

Revenues

$

666


Operating expenses

(1,285

)

Operating loss

$

(619

)

Net loss from continuing operations before non-controlling interests

$

(1,102

)

Net loss from discontinued operations before non-controlling interests

$

-


SoftBank Related-Party Transactions

In addition to agreements arising out of or relating to the SoftBank Merger, Sprint has entered into various other 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.


F-50

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


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. 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 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.

The supply chain and inventory management arrangement included, among other things, that Brightstar would purchase inventory from the 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 years ended March 31, 2016 and 2015 , we incurred fees under these arrangements totaling $102 million and $66 million , respectively. We may also purchase new and used devices and accessories from Brightstar to be sold in our direct channels or to be used to fulfill service and repair needs.

Amounts included in our consolidated financial statements associated with these arrangements with Brightstar were as follows:

March 31,

Consolidated balance sheets:

2016

2015

(in millions)

Accounts receivable

$

197


$

430


Accounts payable

$

96


$

96


March 31,

Consolidated statements of operations:

2016

2015

(in millions)

Equipment revenues (1)

$

1,731


$

1,818


Cost of products (1)

$

1,743


$

1,887


 _________________

(1)

Amounts for all other reported periods were immaterial.

Handset Sale-Leaseback Tranche 1

In November, 2015, Sprint entered into a Handset Sale-Leaseback Tranche 1 transaction with MLS, a company formed by a group of equity investors, including SoftBank to sell and lease-back certain devices, which are currently being leased by our customers, for total proceeds of $1.1 billion ( see Note 4. Funding Sources and Note 13. Commitments and Contingencies ).

All other transactions under agreements with SoftBank Parties, in the aggregate, were immaterial through the period ended March 31, 2016 .



F-51

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 18.

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, which are fully and unconditionally guaranteed by Sprint Communications, Inc.

During the year ended March 31, 2016 there was a non-cash equity contribution from the Subsidiary Guarantor to the Non-Guarantor Subsidiaries as a result of organizational restructuring for tax purposes in the amount of $1.5 billion .

Under the Subsidiary Guarantor's revolving bank credit facility and other finance 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 Tranche 1 transaction to sell and lease-back certain leased devices. In connection with the Receivables Facility and the Handset Sale-Leaseback Tranche 1, 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 4. Funding Sources).

The guarantor financial information distinguishes between the Predecessor period relating to Sprint Communications for periods prior to the SoftBank Merger and the Successor period relating to Sprint Corporation (formerly Starburst II), for periods subsequent to the incorporation of Starburst II on October 5, 2012. Additionally, because the Parent/Issuer column represents the activities of Sprint Corporation (formerly Starburst II), no Parent/Issuer financial information exists for the Predecessor periods, which are prior to the SoftBank Merger. We have accounted for investments in subsidiaries using the equity method. Presented below is the condensed consolidating financial information as of the periods presented in the consolidated financial statements.



F-52

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONDENSED CONSOLIDATING BALANCE SHEET

As of March 31, 2016

Parent/Issuer

Subsidiary Guarantor

Non-Guarantor Subsidiaries

Eliminations

Consolidated

(in millions)

ASSETS

Current assets:

Cash and cash equivalents

$

-


$

2,154


$

487


$

-


$

2,641


Accounts and notes receivable, net

87


27


1,099


(114

)

1,099


Device and accessory inventory

-


-


1,173


-


1,173


Prepaid expenses and other current assets

-


12


1,908


-


1,920


Total current assets

87


2,193


4,667


(114

)

6,833


Investments in subsidiaries

19,783


23,129


-


(42,912

)

-


Property, plant and equipment, net

-


-


20,297


-


20,297


Due from consolidated affiliate

50


19,518


-


(19,568

)

-


Note receivable from consolidated affiliate

10,377


245


-


(10,622

)

-


Intangible assets

Goodwill

-


-


6,575


-


6,575


FCC licenses and other

-


-


40,073


-


40,073


Definite-lived intangible assets, net

-


-


4,469


-


4,469


Other assets

-


1,127


620


(1,019

)

728


Total assets

$

30,297


$

46,212


$

76,701


$

(74,235

)

$

78,975


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

-


$

-


$

2,899


$

-


$

2,899


Accrued expenses and other current liabilities

137


531


3,820


(114

)

4,374


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

-


3,065


1,625


-


4,690


Total current liabilities

137


3,596


8,344


(114

)

11,963


Long-term debt, financing and capital lease obligations

10,377


11,495


8,415


(1,019

)

29,268


Note payable due to consolidated affiliate

-


10,377


245


(10,622

)

-


Deferred tax liabilities

-


-


13,959


-


13,959


Other liabilities

-


961


3,041


-


4,002


Due to consolidated affiliate

-


-


19,568


(19,568

)

-


Total liabilities

10,514


26,429


53,572


(31,323

)

59,192


Commitments and contingencies

Total stockholders' equity

19,783


19,783


23,129


(42,912

)

19,783


Total liabilities and stockholders' equity

$

30,297


$

46,212


$

76,701


$

(74,235

)

$

78,975





F-53

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONDENSED CONSOLIDATING BALANCE SHEET

As of March 31, 2015

Parent/Issuer

Subsidiary Guarantor

Non-Guarantor Subsidiaries

Eliminations

Consolidated

(in millions)

ASSETS

Current assets:

Cash and cash equivalents

$

-


$

3,492


$

518


$

-


$

4,010


Short-term investments

-


146


20


-


166


Accounts and notes receivable, net

84


157


2,160


(111

)

2,290


Device and accessory inventory

-


-


1,359


-


1,359


Deferred tax assets

-


-


62


-


62


Prepaid expenses and other current assets

-


13


1,877


-


1,890


Total current assets

84


3,808


5,996


(111

)

9,777


Investments in subsidiaries

21,712


22,413


-


(44,125

)

-


Property, plant and equipment, net

-


-


19,721


-


19,721


Due from consolidated affiliate

68


20,934


-


(21,002

)

-


Note receivable from consolidated affiliate

10,361


458


-


(10,819

)

-


Intangible assets

Goodwill

-


-


6,575


-


6,575


FCC licenses and other

-


-


39,987


-


39,987


Definite-lived intangible assets, net

-


-


5,893


-


5,893


Other assets

-


1,119


788


(1,019

)

888


Total assets

$

32,225


$

48,732


$

78,960


$

(77,076

)

$

82,841


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

-


$

-


$

4,347


$

-


$

4,347


Accrued expenses and other current liabilities

154


625


4,625


(111

)

5,293


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

-


500


800


-


1,300


Total current liabilities

154


1,125


9,772


(111

)

10,940


Long-term debt, financing and capital lease obligations

10,361


14,574


8,426


(1,019

)

32,342


Note payable due to consolidated affiliate

-


10,361


458


(10,819

)

-


Deferred tax liabilities

-


-


13,898


-


13,898


Other liabilities

-


960


2,991


-


3,951


Due to consolidated affiliate

-


-


21,002


(21,002

)

-


Total liabilities

10,515


27,020


56,547


(32,951

)

61,131


Commitments and contingencies

Total stockholders' equity

21,710


21,712


22,413


(44,125

)

21,710


Total liabilities and stockholders' equity

$

32,225


$

48,732


$

78,960


$

(77,076

)

$

82,841



F-54

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS

Successor

Year Ended March 31, 2016

Parent/Issuer

Subsidiary Guarantor

Non-Guarantor Subsidiaries

Eliminations

Consolidated

(in millions)

Net operating revenues:

Service

$

-


$

-


$

27,174


$

-


$

27,174


Equipment

-


-


5,006


-


5,006


-


-


32,180


-


32,180


Net operating expenses:

Cost of services (exclusive of depreciation and amortization below)

-


-


9,439


-


9,439


Cost of products (exclusive of depreciation and amortization below)

-


-


5,795


-


5,795


Selling, general and administrative

-


-


8,479


-


8,479


Severance and exit costs

-


-


409


-


409


Depreciation

-


-


5,794


-


5,794


Amortization

-


-


1,294


-


1,294


Other, net

-


-


660


-


660


-


-


31,870


-


31,870


Operating income

-


-


310


-


310


Other income (expense):

Interest income

790


165


5


(949

)

11


Interest expense

(790

)

(1,624

)

(717

)

949


(2,182

)

(Losses) earnings of subsidiaries

(1,997

)

(538

)

-


2,535


-


Other income, net

-


-


7


-


7


(1,997

)

(1,997

)

(705

)

2,535


(2,164

)

(Loss) income before income taxes

(1,997

)

(1,997

)

(395

)

2,535


(1,854

)

Income tax benefit (expense)

2


-


(143

)

-


(141

)

Net (loss) income

(1,995

)

(1,997

)

(538

)

2,535


(1,995

)

Other comprehensive (loss) income

(31

)

(31

)

(21

)

52


(31

)

Comprehensive (loss) income

$

(2,026

)

$

(2,028

)

$

(559

)

$

2,587


$

(2,026

)



F-55

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS

Successor

Year Ended March 31, 2015

Parent/Issuer

Subsidiary Guarantor

Non-Guarantor Subsidiaries

Eliminations

Consolidated

(in millions)

Net operating revenues:

Service

$

-


$

-


$

29,542


$

-


$

29,542


Equipment

-


-


4,990


-


4,990


-


-


34,532


-


34,532


Net operating expenses:

Cost of services (exclusive of depreciation and amortization below)

-


-


9,660


-


9,660


Cost of products (exclusive of depreciation and amortization below)

-


-


9,309


-


9,309


Selling, general and administrative

-


-


9,563


-


9,563


Impairments

-


-


2,133


-


2,133


Severance and exit costs

-


-


304


-


304


Depreciation

-


-


3,797


-


3,797


Amortization

-


-


1,552


-


1,552


Other, net

-


1


108


-


109


-


1


36,426


-


36,427


Operating loss

-


(1

)

(1,894

)

-


(1,895

)

Other income (expense):

Interest income

687


146


3


(824

)

12


Interest expense

(687

)

(1,521

)

(667

)

824


(2,051

)

(Losses) earnings of subsidiaries

(3,345

)

(1,970

)

-


5,315


-


Other income, net

-


1


14


-


15


(3,345

)

(3,344

)

(650

)

5,315


(2,024

)

(Loss) income before income taxes

(3,345

)

(3,345

)

(2,544

)

5,315


(3,919

)

Income tax benefit

-


-


574


-


574


Net (loss) income

(3,345

)

(3,345

)

(1,970

)

5,315


(3,345

)

Other comprehensive (loss) income

(365

)

(365

)

(355

)

720


(365

)

Comprehensive (loss) income

$

(3,710

)

$

(3,710

)

$

(2,325

)

$

6,035


$

(3,710

)


F-56

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS

Successor

Three Months Ended March 31, 2014

Parent/Issuer

Subsidiary Guarantor

Non-Guarantor Subsidiaries

Eliminations

Consolidated

(in millions)

Net operating revenues:

Service

$

-


$

-


$

7,876


$

-


$

7,876


Equipment

-


-


999


-


999


-


-


8,875


-


8,875


Net operating expenses:

Cost of services (exclusive of depreciation and amortization below)

-


-


2,622


-


2,622


Cost of products (exclusive of depreciation and amortization below)

-


-


2,038


-


2,038


Selling, general and administrative

-


-


2,371


-


2,371


Severance and exit costs

-


-


52


-


52


Depreciation

-


-


868


-


868


Amortization

-


-


429


-


429


Other, net

-


-


75


-


75


-


-


8,455


-


8,455


Operating income

-


-


420


-


420


Other income (expense):

Interest income

169


20


4


(189

)

4


Interest expense

(166

)

(373

)

(166

)

189


(516

)

(Losses) earnings of subsidiaries

(154

)

199


-


(45

)

-


Other expense, net

-


-


(3

)

-


(3

)

(151

)

(154

)

(165

)

(45

)

(515

)

(Loss) income before income taxes

(151

)

(154

)

255


(45

)

(95

)

Income tax expense

-


-


(56

)

-


(56

)

Net (loss) income

(151

)

(154

)

199


(45

)

(151

)

Other comprehensive (loss) income

(145

)

(145

)

(147

)

292


(145

)

Comprehensive (loss) income

$

(296

)

$

(299

)

$

52


$

247


$

(296

)



F-57

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS

Successor

Year Ended December 31, 2013

Parent/Issuer

Subsidiary Guarantor

Non-Guarantor Subsidiaries

Eliminations

Consolidated

(in millions)

Net operating revenues:

Service

$

-


$

-


$

15,094


$

-


$

15,094


Equipment

-


-


1,797


-


1,797


-


-


16,891


-


16,891


Net operating expenses:

Cost of services (exclusive of depreciation and amortization below)

-


-


5,174


-


5,174


Cost of products (exclusive of depreciation and amortization below)

-


-


4,603


-


4,603


Selling, general and administrative

36


-


4,805


-


4,841


Severance and exit costs

-


-


309


-


309


Depreciation

-


-


2,026


-


2,026


Amortization

-


-


908


-


908


36


-


17,825


-


17,861


Operating loss

(36

)

-


(934

)

-


(970

)

Other income (expense):

Interest income

189


40


6


(200

)

35


Interest expense

(163

)

(548

)

(407

)

200


(918

)

(Losses) earnings of subsidiaries

(1,831

)

(1,320

)

-


3,151


-


Other (expense) income, net

(15

)

(3

)

56


-


38


(1,820

)

(1,831

)

(345

)

3,151


(845

)

(Loss) income before income taxes

(1,856

)

(1,831

)

(1,279

)

3,151


(1,815

)

Income tax expense

(4

)

-


(41

)

-


(45

)

Net (loss) income

(1,860

)

(1,831

)

(1,320

)

3,151


(1,860

)

Other comprehensive income (loss)

102


102


93


(195

)

102


Comprehensive (loss) income

$

(1,758

)

$

(1,729

)

$

(1,227

)

$

2,956


$

(1,758

)







F-58

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS

Predecessor

191 Days Ended July 10, 2013

Subsidiary Guarantor

Non-Guarantor Subsidiaries

Eliminations

Consolidated

(in millions)

Net operating revenues:

Service

$

-


$

16,895


$

-


$

16,895


Equipment

-


1,707


-


1,707


-


18,602


-


18,602


Net operating expenses:

Cost of services (exclusive of depreciation and amortization below)

-


5,673


-


5,673


Cost of products (exclusive of depreciation and amortization below)

-


4,872


-


4,872


Selling, general and administrative

-


5,067


-


5,067


Severance and exit costs

-


652


-


652


Depreciation

-


3,098


-


3,098


Amortization

-


147


-


147


Other, net

-


(22

)

-


(22

)

-


19,487


-


19,487


Operating loss

-


(885

)

-


(885

)

Other income (expense):

Interest income

61


15


(43

)

33


Interest expense

(842

)

(336

)

43


(1,135

)

Equity in losses of unconsolidated investments, net

-


(482

)

-


(482

)

Gain on previously-held equity interests

-


2,926


-


2,926


(Losses) earnings of subsidiaries

(365

)

-


365


-


Other expense, net

(12

)

(2

)

-


(14

)

(1,158

)

2,121


365


1,328


(Loss) income before income taxes

(1,158

)

1,236


365


443


Income tax expense

-


(1,601

)

-


(1,601

)

Net (loss) income

(1,158

)

(365

)

365


(1,158

)

Other comprehensive income (loss)

23


35


(35

)

23


Comprehensive (loss) income

$

(1,135

)

$

(330

)

$

330


$

(1,135

)




F-59

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS

Predecessor

Three Months Ended March 31, 2013 (Unaudited)

Subsidiary Guarantor

Non-Guarantor Subsidiaries

Eliminations

Consolidated

(in millions)

Net operating revenues:

Service

$

-


$

7,980


$

-


$

7,980


Equipment

-


813


-


813


-


8,793


-


8,793


Net operating expenses:

Cost of services (exclusive of depreciation and amortization below)

-


2,640


-


2,640


Cost of products (exclusive of depreciation and amortization below)

-


2,293


-


2,293


Selling, general and administrative

-


2,336


-


2,336


Severance and exit costs

-


25


-


25


Depreciation

-


1,422


-


1,422


Amortization

-


70


-


70


Other, net

-


(22

)

-


(22

)

-


8,764


-


8,764


Operating income

-


29


-


29


Other income (expense):

Interest income

29


6


(21

)

14


Interest expense

(292

)

(161

)

21


(432

)

Equity in losses of unconsolidated investments, net

-


(202

)

-


(202

)

(Losses) earnings of subsidiaries

(368

)

-


368


-


Other expense, net

(12

)

(2

)

-


(14

)

(643

)

(359

)

368


(634

)

(Loss) income before income taxes

(643

)

(330

)

368


(605

)

Income tax expense

-


(38

)

-


(38

)

Net (loss) income

(643

)

(368

)

368


(643

)

Other comprehensive income (loss)

14


15


(15

)

14


Comprehensive (loss) income

$

(629

)

$

(353

)

$

353


$

(629

)



F-60

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Successor

Year Ended March 31, 2016

Parent/Issuer

Subsidiary Guarantor

Non-Guarantor Subsidiaries

Eliminations

Consolidated

(in millions)

Cash flows from operating activities:

Net cash (used in) provided by operating activities

$

-


$

(1,421

)

$

5,551


$

(233

)

$

3,897


Cash flows from investing activities:

Capital expenditures - network and other

-


-


(4,680

)

-


(4,680

)

Capital expenditures - leased devices

-


-


(2,292

)

-


(2,292

)

Expenditures relating to FCC licenses

-


-


(98

)

-


(98

)

Proceeds from sales and maturities of short-term investments

-


343


75


-


418


Purchases of short-term investments

-


(197

)

(55

)

-


(252

)

Change in amounts due from/due to consolidated affiliates

1


(36

)

-


35


-


Proceeds from sales of assets and FCC licenses

-


-


62


-


62


Proceeds from sale-leaseback transaction

-


-


1,136


-


1,136


Intercompany note advance to consolidated affiliate

-


(159

)

-


159


-


Proceeds from intercompany note advance to consolidated affiliate

-


372


-


(372

)

-


Other, net

-


-


(29

)

-


(29

)

Net cash provided by (used in) investing activities

1


323


(5,881

)

(178

)

(5,735

)

Cash flows from financing activities:

Proceeds from debt and financings

-


250


505


-


755


Repayments of debt, financing and capital lease obligations

-


(500

)

(399

)

-


(899

)

Proceeds from sales of future lease receivables

-


-


600


-


600


Debt financing costs

(1

)

-


(10

)

-


(11

)

Proceeds from issuance of common stock, net

-


10


-


-


10


Intercompany dividends paid to consolidated affiliate

-


-


(233

)

233


-


Change in amounts due from/due to consolidated affiliates

-


-


35


(35

)

-


Intercompany note advance from parent

-


-


159


(159

)

-


Repayments of intercompany note advance from parent

-


-


(372

)

372


-


Other, net

-


-


14


-


14


Net cash (used in) provided by financing activities

(1

)

(240

)

299


411


469


Net decrease in cash and cash equivalents

-


(1,338

)

(31

)

-


(1,369

)

Cash and cash equivalents, beginning of period

-


3,492


518


-


4,010


Cash and cash equivalents, end of period

$

-


$

2,154


$

487


$

-


$

2,641




F-61

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Successor

Year Ended March 31, 2015

Parent/Issuer

Subsidiary Guarantor

Non-Guarantor Subsidiaries

Eliminations

Consolidated

(in millions)

Cash flows from operating activities:

Net cash (used in) provided by operating activities

$

-


$

(750

)

$

3,700


$

(500

)

$

2,450


Cash flows from investing activities:

Capital expenditures - network and other

-


-


(5,422

)

-


(5,422

)

Capital expenditures - leased devices

-


-


(582

)

-


(582

)

Expenditures relating to FCC licenses

-


-


(163

)

-


(163

)

Reimbursements relating to FCC licenses

-


-


95


-


95


Proceeds from sales and maturities of short-term investments

-


3,061


70


-


3,131


Purchases of short-term investments

-


(1,987

)

(90

)

-


(2,077

)

Change in amounts due from/due to consolidated affiliates

-


(2,425

)

-


2,425


-


Proceeds from sales of assets and FCC licenses

-


-


315


-


315


Intercompany note advance to consolidated affiliate

(1,481

)

(343

)

-


1,824


-


Other, net

-


-


(11

)

-


(11

)

Net cash (used in) provided by investing activities

(1,481

)

(1,694

)

(5,788

)

4,249


(4,714

)

Cash flows from financing activities:

Proceeds from debt and financings

1,500


300


130


-


1,930


Repayments of debt, financing and capital lease obligations

-


-


(574

)

-


(574

)

Debt financing costs

(21

)

(5

)

(61

)

-


(87

)

Proceeds from issuance of common stock, net

-


35


-


-


35


Intercompany dividends paid to consolidated affiliate

-


-


(500

)

500


-


Change in amounts due from/due to consolidated affiliates

2


-


2,423


(2,425

)

-


Intercompany note advance from parent

-


1,481


343


(1,824

)

-


Net cash provided by (used in) financing activities

1,481


1,811


1,761


(3,749

)

1,304


Net decrease in cash and cash equivalents

-


(633

)

(327

)

-


(960

)

Cash and cash equivalents, beginning of period

-


4,125


845


-


4,970


Cash and cash equivalents, end of period

$

-


$

3,492


$

518


$

-


$

4,010



F-62

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Successor

Three Months Ended March 31, 2014

Parent/Issuer

Subsidiary Guarantor

Non-

Guarantor Subsidiaries

Eliminations

Consolidated

(in millions)

Cash flows from operating activities:

Net cash (used in) provided by operating activities

$

-


$

(483

)

$

1,005


$

-


$

522


Cash flows from investing activities:

Capital expenditures

-


-


(1,488

)

-


(1,488

)

Expenditures relating to FCC licenses

-


-


(152

)

-


(152

)

Proceeds from sales and maturities of short-term investments

-


920


-


-


920


Purchases of short-term investments

-


(1,035

)

-


-


(1,035

)

Change in amounts due from/due to consolidated affiliates

-


(941

)

-


941


-


Proceeds from sales of assets and FCC licenses

-


-


1


-


1


Other, net

-


-


(2

)

-


(2

)

Net cash (used in) provided by investing activities

-


(1,056

)

(1,641

)

941


(1,756

)

Cash flows from financing activities:

Repayments of debt and capital lease obligations

-


-


(159

)

-


(159

)

Debt financing costs

-


(1

)

-


-


(1

)

Change in amounts due from/due to consolidated affiliates

-


-


941


(941

)

-


Net cash (used in) provided by financing activities

-


(1

)

782


(941

)

(160

)

Net (decrease) increase in cash and cash equivalents

-


(1,540

)

146


-


(1,394

)

Cash and cash equivalents, beginning of period

-


5,665


699


-


6,364


Cash and cash equivalents, end of period

$

-


$

4,125


$

845


$

-


$

4,970



F-63

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Successor

Year Ended December 31, 2013

Parent/Issuer

Subsidiary Guarantor

Non-

Guarantor Subsidiaries

Eliminations

Consolidated

(in millions)

Cash flows from operating activities:

Net cash provided by (used in) operating activities

$

9


$

(458

)

$

388


$

-


$

(61

)

Cash flows from investing activities:

Capital expenditures

-


-


(3,847

)

-


(3,847

)

Expenditures relating to FCC licenses

-


-


(146

)

-


(146

)

Acquisitions, net of cash acquired

(16,640

)

2,528


-


-


(14,112

)

Proceeds from sales and maturities of short-term investments

-


1,715


-


-


1,715


Purchases of short-term investments

-


(1,719

)

-


-


(1,719

)

Change in amounts due from/due to consolidated affiliates

-


(7,189

)

-


7,189


-


Proceeds from sales of assets and FCC licenses

-


-


7


-


7


Investment in consolidated affiliate

(1,900

)

-


-


1,900


-


Intercompany note advance to consolidated affiliate

(8,861

)

-


-


8,861


-


Other, net

-


-


(6

)

-


(6

)

Net cash (used in) provided by investing activities

(27,401

)

(4,665

)

(3,992

)

17,950


(18,108

)

Cash flows from financing activities:

Proceeds from debt and financings

9,000


-


500


-


9,500


Repayments of debt and capital lease obligations

-


-


(3,378

)

-


(3,378

)

Debt financing costs

(139

)

-


(8

)

-


(147

)

Proceeds from issuance of common stock and warrants, net

18,540


27


-


-


18,567


Change in amounts due from/due to consolidated affiliates

-


-


7,189


(7,189

)

-


Intercompany note advance from parent

-


8,861


-


(8,861

)

-


Equity contribution from parent

-


1,900


-


(1,900

)

-


Other, net

(14

)

-


-


-


(14

)

Net cash provided by (used in) financing activities

27,387


10,788


4,303


(17,950

)

24,528


Net (decrease) increase in cash and cash equivalents

(5

)

5,665


699


-


6,359


Cash and cash equivalents, beginning of period

5


-


-


-


5


Cash and cash equivalents, end of period

$

-


$

5,665


$

699


$

-


$

6,364



F-64

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Predecessor

191 Days Ended July 10, 2013

Subsidiary Guarantor

Non-

Guarantor Subsidiaries

Eliminations

Consolidated

(in millions)

Cash flows from operating activities:

Net cash (used in) provided by operating activities

$

(559

)

$

3,230


$

-


$

2,671


Cash flows from investing activities:

Capital expenditures

-


(3,140

)

-


(3,140

)

Expenditures relating to FCC licenses

-


(125

)

-


(125

)

Acquisitions, net of cash acquired

(4,039

)

-


-


(4,039

)

Investment in Clearwire (including debt securities)

-


(308

)

-


(308

)

Proceeds from sales and maturities of short-term investments

2,445


-


-


2,445


Purchases of short-term investments

(1,221

)

-


-


(1,221

)

Change in amounts due from/due to consolidated affiliates

(372

)

-


372


-


Proceeds from sales of assets and FCC licenses

-


10


-


10


Other, net

-


(7

)

-


(7

)

Net cash (used in) provided by investing activities

(3,187

)

(3,570

)

372


(6,385

)

Cash flows from financing activities:

Proceeds from debt and financings

-


204


-


204


Repayments of debt and capital lease obligations

-


(362

)

-


(362

)

Debt financing costs

(11

)

-


-


(11

)

Proceeds from issuance of common stock, net

60


-


-


60


Change in amounts due from/due to consolidated affiliates

-


372


(372

)

-


Net cash provided by (used in) financing activities

49


214


(372

)

(109

)

Net decrease in cash and cash equivalents

(3,697

)

(126

)

-


(3,823

)

Cash and cash equivalents, beginning of period

5,218


1,133


-


6,351


Cash and cash equivalents, end of period

$

1,521


$

1,007


$

-


$

2,528




F-65

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Predecessor

Three Months Ended March 31, 2013 (Unaudited)

Subsidiary Guarantor

Non-

Guarantor Subsidiaries

Eliminations

Consolidated

(in millions)

Cash flows from operating activities:

Net cash (used in) provided by operating activities

$

(210

)

$

1,150


$

-


$

940


Cash flows from investing activities:

Capital expenditures

-


(1,381

)

-


(1,381

)

Expenditures relating to FCC licenses

-


(55

)

-


(55

)

Investment in Clearwire (including debt securities)

-


(80

)

-


(80

)

Proceeds from sales and maturities of short-term investments

1,281


-


-


1,281


Purchases of short-term investments

(926

)

-


-


(926

)

Change in amounts due from/due to consolidated affiliates

(236

)

-


236


-


Proceeds from sales of assets and FCC licenses

-


6


-


6


Other, net

-


(3

)

-


(3

)

Net cash provided by (used in) investing activities

119


(1,513

)

236


(1,158

)

Cash flows from financing activities:

Proceeds from debt and financings

-


204


-


204


Repayments of debt and capital lease obligations

-


(59

)

-


(59

)

Debt financing costs

(10

)

-


-


(10

)

Proceeds from issuance of common stock, net

7


-


-


7


Change in amounts due from/due to consolidated affiliates

-


236


(236

)

-


Net cash (used in) provided by financing activities

(3

)

381


(236

)

142


Net (decrease) increase in cash and cash equivalents

(94

)

18


-


(76

)

Cash and cash equivalents, beginning of period

5,218


1,133


-


6,351


Cash and cash equivalents, end of period

$

5,124


$

1,151


$

-


$

6,275




F-66

Table of Contents


Index to Consolidated Financial Statements



SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 19.

Subsequent Events

Network Equipment Sale-Leaseback

In April 2016, certain wholly-owned subsidiaries of Sprint entered into agreements (Network Equipment Sale-Leaseback) to sell and lease-back certain network equipment to unrelated bankruptcy-remote special purpose entities (collectively, "the Network LeaseCo SPEs"). Sprint sold certain network equipment with a book value of approximately $3.0 billion to the Network LeaseCo SPEs which was used as collateral to raise approximately $2.2 billion in borrowings from external investors, including SoftBank.

The Network LeaseCo SPEs are variable interest entities for which Sprint has been identified as the primary beneficiary. As a result, Sprint is required to consolidate the Network LeaseCo SPEs and intercompany transactions and balances between Network LeaseCo and the wholly-owned Sprint subsidiaries will be eliminated in consolidation. The network assets involved in the transaction, which consisted primarily of equipment located at cell towers, will remain on Sprint's consolidated financial statements and will continue to be depreciated. Principal and interest payments on the borrowings from the external investors will be paid back in staggered, unequal payments through January 2018.

New Unsecured Financing Facility

In April 2016, Sprint Communications entered into an unsecured financing facility for $2.0 billion . The terms of this facility provide for covenant terms similar to those of the revolving bank credit facility, however, repayments of outstanding amounts cannot be re-drawn. The loan bears interest at a rate equal to LIBOR plus a percentage that varies depending on the time of draw and matures in October 2017. Any amounts borrowed will be required to be repaid if certain debt or equity securities are issued or certain asset sales occur, as set forth more specifically in the agreement. As of May 17, 2016 , no amounts had been drawn on this facility.

Handset Sale-Leaseback Tranche 2

In April 2016, Sprint entered into a second transaction with MLS (Handset Sale-Leaseback Tranche 2) to sell and lease-back certain iPhone ® devices leased to customers under the iPhone Forever or iPhone for Life programs. In contrast with the first MLS transaction, this sale-leaseback arrangement will be accounted for as a financing transaction. Accordingly, the devices will remain in Property, plant and equipment, net in the consolidated balance sheets and will continue to be depreciated to their estimated residual values generally over the lease term. The proceeds received will be reflected as cash provided by financing activities on the consolidated statements of cash flows and payments made to MLS will be reflected as principal repayments and interest expense over the respective terms. Future changes in the fair value of the financing obligation will be recognized in earnings over the course of the arrangement.

Upon closing of the transaction in May 2016, Sprint sold and leased-back approximately $1.3 billion in book value of leased devices for cash proceeds totaling $1.1 billion and a DPP of $186 million , which will be settled at the end of the arrangement and is subject to certain device losses incurred by MLS.

Shentel Transaction

In April 2016, we received regulatory approval and the transaction was closed in May 2016 for a series of agreements we entered into in August 2015 with Shenandoah Telecommunications Company (Shentel) as a result of Shentel acquiring one of our wholesale partners, NTELOS Holdings Corp (nTelos). The total consideration for this transaction to acquire certain assets such as spectrum, to amend our affiliate agreement with Shentel and to expand the area in which Shentel provides wireless service to Sprint customers on more favorable economic terms included approximately $195 million , on a net present value basis, of notes payable to Shentel. Sprint will satisfy its obligations under the notes payable over an expected term of five to six years. Approximately $110 million of the total purchase price will be recorded as a loss in the quarter ended June 30, 2016, which related to the termination of our pre-existing wholesale arrangement with nTelos.



F-67

Table of Contents


Index to Consolidated Financial Statements


INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of Clearwire Corporation

Bellevue, Washington


We have audited the accompanying consolidated financial statements of Clearwire Corporation and its subsidiaries (the "Company"), which comprise the consolidated balance sheet as of July 9, 2013, and the related consolidated statements of operations, comprehensive loss, cash flows, and stockholders' equity for the 190 days ended July 9, 2013, and the related notes to the consolidated financial statements.


Management's Responsibility for the Consolidated Financial Statements


Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.


Auditors' Responsibility


Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.


An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.


We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.


Opinion


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Clearwire Corporation and its subsidiaries as of July 9, 2013, and the results of their operations and their cash flows for the 190 days ended July 9, 2013 in accordance with accounting principles generally accepted in the United States of America.


Emphasis of Matter


As discussed in Note 1 to the consolidated financial statements, effective July 9, 2013, Sprint Communications, Inc. acquired all of the outstanding stock of Clearwire Corporation in a business combination accounted for as a purchase. As a result of the acquisition, Clearwire Corporation became a consolidated subsidiary of Sprint Corporation as of that date. Our opinion is not modified with respect to this matter.


/s/ DELOITTE & TOUCHE LLP


Seattle, Washington

February 21, 2014




F-68

Table of Contents


Index to Consolidated Financial Statements


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders of Clearwire Corporation

Bellevue, Washington


We have audited the accompanying consolidated balance sheet of Clearwire Corporation and subsidiaries (the "Company") as of December 31, 2012 and the related consolidated statements of operations, comprehensive loss, cash flows, and stockholders' equity for each of the two years in the period ended December 31, 2012. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.


In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Clearwire Corporation and subsidiaries as of December 31, 2012 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.


/s/ DELOITTE & TOUCHE LLP


Seattle, Washington

February 21, 2014



F-69

Table of Contents


Index to Consolidated Financial Statements


CLEARWIRE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


July 9,
2013

December 31,
2012

(In thousands, except par value)

ASSETS

Current assets:



Cash and cash equivalents

$

193,912


$

193,445


Short-term investments

476,224


675,112


Restricted cash

1,642


1,653


Accounts receivable, net of allowance of $2,000 and $3,145

21,226


22,769


Inventory

19,403


10,940


Prepaids and other assets

135,948


83,769


Total current assets

848,355


987,688


Property, plant and equipment, net

2,019,326


2,259,004


Restricted cash

2,019


3,709


Spectrum licenses, net

4,222,900


4,249,621


Other intangible assets, net

18,204


24,660


Other assets

137,105


141,107


Total assets

$

7,247,909


$

7,665,789


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:



Accounts payable and accrued expenses

$

260,667


$

177,855


Other current liabilities

332,113


227,610


Total current liabilities

592,780


405,465


Long-term debt, net

4,322,935


4,271,357


Deferred tax liabilities, net

218,450


143,992


Other long-term liabilities

961,328


963,353


Total liabilities

6,095,493


5,784,167


Commitments and contingencies (Note 12)

Stockholders' equity:



Class A common stock, par value $0.0001, 1,500,000 and 2,000,000 shares authorized; 823,197 and 691,315 shares outstanding

82


69


Class B common stock, par value $0.0001, 1,500,000 and 1,400,000 shares authorized; 650,588 and 773,733 shares outstanding

65


77


Additional paid-in capital

3,477,182


3,158,244


Accumulated other comprehensive loss

(2

)

(6

)

Accumulated deficit

(2,926,193

)

(2,346,393

)

Total Clearwire Corporation stockholders' equity

551,134


811,991


Non-controlling interests

601,282


1,069,631


Total stockholders' equity

1,152,416


1,881,622


Total liabilities and stockholders' equity

$

7,247,909


$

7,665,789


See notes to consolidated financial statements


F-70

Table of Contents


Index to Consolidated Financial Statements


CLEARWIRE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS


190 Days Ended July 9,

Year ended December 31,

2013

2012

2011

(In thousands)

Revenues

$

665,602


$

1,264,694


$

1,253,466


Operating expenses:

Cost of goods and services and network costs (exclusive of items shown separately below)

439,351


908,078


1,249,966


Selling, general and administrative expense

294,913


558,202


698,067


Depreciation and amortization

370,411


768,193


687,636


Spectrum lease expense

178,989


326,798


308,693


Loss from abandonment of network and other assets

833


82,206


700,341


Total operating expenses

1,284,497


2,643,477


3,644,703


Operating loss

(618,895

)

(1,378,783

)

(2,391,237

)

Other income (expense):



Interest income

612


1,895


2,335


Interest expense

(305,632

)

(553,459

)

(505,992

)

Gain on derivative instruments

5,337


1,356


145,308


Other income (expense), net

1,753


(12,153

)

681


Total other expense, net

(297,930

)

(562,361

)

(357,668

)

Loss from continuing operations before income taxes

(916,825

)

(1,941,144

)

(2,748,905

)

Income tax benefit (provision)

(185,480

)

197,399


(106,828

)

Net loss from continuing operations

(1,102,305

)

(1,743,745

)

(2,855,733

)

Less: non-controlling interests in net loss from continuing operations of consolidated subsidiaries

522,505


1,182,183


2,158,831


Net loss from continuing operations attributable to Clearwire Corporation

(579,800

)

(561,562

)

(696,902

)

Net loss from discontinued operations attributable to Clearwire Corporation, net of tax

-


(167,005

)

(20,431

)

Net loss attributable to Clearwire Corporation

$

(579,800

)

$

(728,567

)

$

(717,333

)


See notes to consolidated financial statements



F-71

Table of Contents


Index to Consolidated Financial Statements


CLEARWIRE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS


190 Days Ended July 9,

Year ended December 31,

2013

2012

2011

(In thousands)

Net loss:

Net loss from continuing operations

$

(1,102,305

)

$

(1,743,745

)

$

(2,855,733

)

Less: non-controlling interests in net loss from continuing operations of consolidated subsidiaries

522,505


1,182,183


2,158,831


Net loss from continuing operations attributable to Clearwire Corporation

(579,800

)

(561,562

)

(696,902

)

Net loss from discontinued operations

-


(168,361

)

(81,810

)

Less: non-controlling interests in net loss from discontinued operations of consolidated subsidiaries

-


1,356


61,379


Net loss from discontinued operations attributable to Clearwire Corporation, net of tax

-


(167,005

)

(20,431

)

Net loss attributable to Clearwire Corporation

(579,800

)

(728,567

)

(717,333

)

Other comprehensive income (loss):

Unrealized foreign currency gains (losses) during the period

43


(699

)

3,913


Less: reclassification adjustment of cumulative foreign currency (gains) losses to net loss from continuing operations

-


(8,739

)

-


Unrealized investment holding gains (losses) during the period

(35

)

56


(1,185

)

Less: reclassification adjustment of investment holding gains to net loss

-


-


(4,945

)

Other comprehensive income (loss)

8


(9,382

)

(2,217

)

Less: non-controlling interests in other comprehensive (income) loss of consolidated subsidiaries

(4

)

6,056


1,851


Other comprehensive income (loss) attributable to Clearwire Corporation

4


(3,326

)

(366

)

Comprehensive loss:

Comprehensive loss

(1,102,297

)

(1,921,488

)

(2,939,760

)

Less: non-controlling interests in comprehensive loss of consolidated subsidiaries

522,501


1,189,595


2,222,061


Comprehensive loss attributable to Clearwire Corporation

$

(579,796

)

$

(731,893

)

$

(717,699

)


See notes to consolidated financial statements



F-72

Table of Contents


Index to Consolidated Financial Statements


CLEARWIRE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

190 Days Ended July 9,

Year ended December 31,

2013

2012

2011

(In thousands)

Cash flows from operating activities:




Net loss from continuing operations

$

(1,102,305

)

$

(1,743,745

)

$

(2,855,733

)

Adjustments to reconcile net loss to net cash used in operating activities:



Deferred income taxes

184,599


(199,199

)

105,308


Non-cash gain on derivative instruments

(5,337

)

(1,356

)

(145,308

)

Accretion of discount on debt

36,832


41,386


40,216


Depreciation and amortization

370,411


768,193


687,636


Amortization of spectrum leases

27,871


54,328


53,674


Non-cash rent expense

82,332


197,169


342,962


Loss on property, plant and equipment (Note 4)

10,085


171,780


966,441


Other operating activities

20,973


42,740


27,745


Changes in assets and liabilities:



Inventory

(10,057

)

11,200


15,697


Accounts receivable

(2,770

)

50,401


(54,212

)

Prepaids and other assets

(53,431

)

326


22,447


Prepaid spectrum licenses

-


1,904


(4,360

)

Deferred revenue

39,227


170,455


16,497


Accounts payable and other liabilities

60,329


(17,090

)

(152,180

)

Net cash used in operating activities of continuing operations

(341,241

)

(451,508

)

(933,170

)

Net cash provided by (used in) operating activities of discontinued operations

-


(3,000

)

2,381


Net cash used in operating activities

(341,241

)

(454,508

)

(930,789

)

Cash flows from investing activities:




Capital expenditures

(76,843

)

(112,997

)

(405,655

)

Purchases of available-for-sale investments

(501,814

)

(1,797,787

)

(957,883

)

Disposition of available-for-sale investments

699,450


1,339,078


1,255,176


Other investing activities

1,224


(655

)

20,229


Net cash provided by (used in) investing activities of continuing operations

122,017


(572,361

)

(88,133

)

Net cash provided by (used in) investing activities of discontinued operations

-


1,185


(3,886

)

Net cash provided by (used in) investing activities

122,017


(571,176

)

(92,019

)

Cash flows from financing activities:




Principal payments on long-term debt

(20,566

)

(26,985

)

(29,957

)

Proceeds from issuance of long-term debt

240,000


300,000


-


Debt financing fees

-


(6,205

)

(1,159

)

Equity investment by strategic investors

199


8


331,400


Proceeds from issuance of common stock

-


58,460


387,279


Net cash provided by financing activities of continuing operations

219,633


325,278


687,563


Net cash provided by financing activities of discontinued operations

-


-


-


Net cash provided by financing activities

219,633


325,278


687,563


Effect of foreign currency exchange rates on cash and cash equivalents

58


107


(4,573

)

Net increase (decrease) in cash and cash equivalents

467


(700,299

)

(339,818

)

Cash and cash equivalents:



Beginning of period

193,445


893,744


1,233,562


End of period

193,912


193,445


893,744


Less: cash and cash equivalents of discontinued operations at end of period

-


-


1,815


Cash and cash equivalents of continuing operations at end of period

$

193,912


$

193,445


$

891,929


Supplemental cash flow disclosures:




Cash paid for interest including capitalized interest paid

$

256,227


$

505,913


$

474,849


Non-cash investing activities:



Fixed asset purchases in accounts payable and accrued expenses

$

18,337


$

20,795


$

14,144


Fixed asset purchases financed by long-term debt

$

50,126


$

36,229


$

11,514


Non-cash financing activities:



Vendor financing obligations

$

(11,128

)

$

(4,644

)

$

(3,332

)

Capital lease obligations

$

(38,998

)

$

(31,585

)

$

(8,182

)

Class A common stock issued for repayment of long-term debt

$

-


$

88,456


$

-


Repayment of long-term debt through issuances of Class A common stock

$

-


$

(88,456

)

$

-



See notes to consolidated financial statements


F-73

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Index to Consolidated Financial Statements


CLEARWIRE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the 190 Days Ended July 9, 2013 and the Years Ended December 31, 2012 and 2011


Class A

Common Stock

Class B

Common Stock

Shares

Amounts

Shares

Amounts

Additional Paid In Capital

Accumulated
Other
Comprehensive Income (Loss)

Accumulated Deficit

Non-controlling Interests

Total
Stockholders'

Equity

(In thousands)

Balances at December 31, 2010

243,544


$

24


743,481


$

74


$

2,221,110


$

2,495


$

(900,493

)

$

4,546,788


$

5,869,998


Net loss from continuing operations

-


-


-


-


-


-


(696,902

)

(2,158,831

)

(2,855,733

)

Net loss from discontinued operations

-


-


-


-


-


-


(20,431

)

(61,379

)

(81,810

)

Foreign currency translation adjustment

-


-


-


-


-


1,149


-


2,764


3,913


Unrealized gain on investments

-


-


-


-


-


(1,515

)

-


(4,615

)

(6,130

)

Issuance of common stock, net of issuance costs, and other capital transactions

208,671


21


96,222


9


478,394


664


-


210,088


689,176


Share-based compensation and other transactions

-


-


-


-


15,130


-


-


11,494


26,624


Balances at December 31, 2011

452,215


45


839,703


83


2,714,634


2,793


(1,617,826

)

2,546,309


3,646,038


Net loss from continuing operations

-


-


-


-


-


-


(561,562

)

(1,182,183

)

(1,743,745

)

Net loss from discontinued operations

-


-


-


-


-


-


(167,005

)

(1,356

)

(168,361

)

Foreign currency translation adjustment

-


-


-


-


-


(3,354

)

-


(6,084

)

(9,438

)

Unrealized gain on investments

-


-


-


-


-


28


-


28


56


Issuance of common stock, net of issuance costs, and other capital transactions

239,100


24


(65,970

)

(6

)

415,467


527


-


(287,806

)

128,206


Share-based compensation and other transactions

-


-


-


-


28,143


-


-


723


28,866


Balances at December 31, 2012

691,315


69


773,733


77


3,158,244


(6

)

(2,346,393

)

1,069,631


1,881,622


Net loss from continuing operations

-


-


-


-


-


-


(579,800

)

(522,505

)

(1,102,305

)

Foreign currency translation adjustment

-


-


-


-


-


16


-


27


43


Unrealized loss on investments

-


-


-


-


-


(12

)

-


(23

)

(35

)

Issuance of common stock, net of issuance costs, and other capital transactions

131,882


13


(123,145

)

(12

)

295,834


-


-


56,284


352,119


Share-based compensation and other transactions

-


-


-


-


23,104


-


-


(2,132

)

20,972


Balances at July 9, 2013

823,197


$

82


650,588


$

65


$

3,477,182


$

(2

)

$

(2,926,193

)

$

601,282


$

1,152,416



See notes to consolidated financial statements



F-74

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Index to Consolidated Financial Statements



CLEARWIRE CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



1.

Description of Business


Clearwire Corporation, including its consolidated subsidiaries, ("Clearwire", "we," "us," "our," or the "Company") is a provider of fourth generation, or 4G, wireless broadband services. We build and operate next generation mobile broadband networks that provide high-speed mobile Internet and residential Internet access services in communities throughout the country. Our current 4G mobile broadband network operates on the Worldwide Interoperability of Microwave Access technology 802.16e standard, which we refer to as mobile WiMAX. In our current 4G mobile broadband markets in the United States, we offer our services through retail channels and through our wholesale partners.


Sprint Acquisition


On December 17, 2012, we entered into an agreement and plan of merger with Sprint Nextel Corporation, which we refer to as the Merger Agreement, pursuant to which Sprint Nextel Corporation agreed to acquire all of the outstanding shares of Clearwire Corporation Class A and Class B common stock, which we refer to as Class A Common Stock and Class B Common Stock, respectively, not currently owned by Sprint Nextel Corporation, SoftBank Corp., which we refer to as SoftBank, or their affiliates. The merger, which we refer to as the Sprint Acquisition, closed on July 9, 2013, which we refer to as the Acquisition Date, and as of that date we became a wholly-owned subsidiary of Sprint Communications, Inc. (formerly known as Sprint Nextel Corporation), which we refer to as Sprint, and an indirect wholly-owned subsidiary of Sprint Corporation. At the closing of the Sprint Acquisition, the outstanding shares of common stock were converted automatically into the right to receive $5.00 per share in cash, without interest, which we refer to as the Merger Consideration. As a result of the Sprint Acquisition and the resulting change in ownership and control, the acquisition method of accounting will be applied by Sprint, pushed-down to us and included in our consolidated financial statements for all periods presented subsequent to the Acquisition Date. This will result in a new basis of presentation based on the estimated fair values of our assets and liabilities for the successor period beginning as of the day following the consummation of the merger. The estimated fair values will be based on management's judgment after evaluating several factors, including a preliminary valuation assessment.

The accompanying consolidated financial statements and notes represent the period of time prior to the Sprint Acquisition and do not reflect adjustments which will be made as a result of the Sprint Acquisition, including the acquisition method of accounting. Prior to the Sprint Acquisition, Sprint applied the equity method of accounting to its investment in Clearwire. Clearwire's accompanying consolidated financial statements have been included as an Exhibit to Sprint's Form 10-K as required by Regulation S-X, Rule 3.09.

Note Purchase Agreement


In connection with the Merger Agreement, on December 17, 2012, we entered into a Note Purchase Agreement, which we refer to as the Note Purchase Agreement, with Clearwire Communications LLC, which we refer to as Clearwire Communications, Clearwire Finance Inc., and together with Clearwire Communications, which we refer to as the Issuers, and Sprint, in which Sprint agreed to purchase from us at our election up to an aggregate principal amount of $800.0 million of 1.00% Exchangeable Notes due 2018, which we refer to as the Sprint Notes, in ten monthly installments of $80.0 million each on the first business day of each month, which we refer to as the Draw Date, beginning January 2013 and through the pendency of the merger. The Notes accrue interest at 1.00% per annum and are exchangeable into shares of Class A Common Stock at an exchange rate of 666.67 shares per $1,000 aggregate principal amount of the Notes, which is equivalent to a price of $1.50 per share, subject to anti-dilution protections. See Note 9, Long-term Debt, net, for further information.


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CLEARWIRE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)


Liquidity


To date, we have invested heavily in building and maintaining our networks. We have a history of operating losses, and we expect to have significant losses in the future. We do not expect our operations to generate cumulative positive cash flows during the next twelve months.


We expect to meet our funding needs for the near future through our cash and investments held at July 9, 2013 and cash receipts from our mobile WiMAX, services from our retail and wholesale business, other than Sprint, and Sprint under the 2011 November 4G MVNO Amendment. Additionally, we anticipate receiving funds from Sprint for the deployment of our Time Division Duplex, which we refer to as TDD, Long Term Evolution, which we refer to as LTE, network and the use of additional spectrum not specified in the 2011 November 4G MVNO Amendment. As a wholly-owned subsidiary of Sprint, to the extent we are not able to fund our business through our retail and wholesale revenue streams, we expect to receive funding for any shortfall from Sprint such that we will continue to be a going concern for at least the next twelve months.


2.

Summary of Significant Accounting Policies

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which we refer to as U.S. GAAP. The following is a summary of our significant accounting policies:

Principles of Consolidation  - The consolidated financial statements include all of the assets, liabilities and results of operations of our wholly-owned subsidiaries, and subsidiaries we control or in which we have a controlling financial interest. Investments in entities that we do not control and are not the primary beneficiary, but for which we have the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method. All intercompany transactions are eliminated in consolidation.

Non-controlling interests on the consolidated balance sheets include third-party investments in entities that we consolidate, but do not wholly own. We classify our non-controlling interests as part of equity and we allocate net loss, other comprehensive income (loss) and other equity transactions to our non-controlling interests in accordance with their applicable ownership percentages. We also continue to attribute to our non-controlling interests their share of losses even if that attribution results in a deficit non-controlling interest balance. See Note 14, Stockholders' Equity, for further information.

Financial Statement Presentation  - We have reclassified certain prior period amounts to conform with the current period presentation.

Use of Estimates  - Preparing financial statements in conformity with U.S. GAAP requires management to make complex and subjective judgments. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of existing contracts, observance of trends in the industry, information provided by our subscribers and information available from other outside sources, as appropriate. Additionally, changes in accounting estimates are reasonably likely to occur from period to period. These factors could have a material impact on our financial statements, the presentation of our financial condition, changes in financial condition or results of operations.

Significant estimates inherent in the preparation of the accompanying financial statements include: impairment analysis of spectrum licenses with indefinite lives, including judgments about when an impairment indicator may or may not have occurred and estimates of the fair value of our spectrum licenses, the recoverability and determination of useful lives for long-lived assets, which include property, plant and equipment and other intangible assets, tax valuation allowances and valuation of derivatives.

Cash and Cash Equivalents  - Cash equivalents consist of money market mutual funds and highly liquid short-term investments, with original maturities of three months or less. Cash equivalents are stated at cost, which


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CLEARWIRE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)


approximates market value. Cash and cash equivalents exclude cash that is contractually restricted for operational purposes. We maintain cash and cash equivalent balances with financial institutions that exceed federally insured limits. We have not experienced any losses related to these balances, and management believes the credit risk related to these balances to be minimal.

Restricted Cash  - Restricted cash consists primarily of amounts to satisfy certain contractual obligations and is classified as a current or non-current asset based on its designated purpose. The majority of this restricted cash has been designated to satisfy certain lease obligations.

Investments  - We have an investment portfolio comprised primarily of U.S. Government and Agency marketable debt securities. We classify marketable debt securities as available-for-sale investments and these securities are stated at their estimated fair value. Our investments are recorded as short-term investments when the original maturities are greater than three months but remaining maturities are less than one year. Our investments with maturities of more than one year are recorded as long-term investments. Unrealized gains and losses are recorded within accumulated other comprehensive income (loss). Realized gains and losses are measured and reclassified from accumulated other comprehensive income (loss) on the basis of the specific identification method.

We account for certain of our investments using the equity method based on our ownership interest and our ability to exercise significant influence. Accordingly, we record our investment initially at cost and we adjust the carrying amount of the investment to recognize our share of the earnings or losses of the investee each reporting period. We cease to recognize investee losses when our investment basis is zero. At July 9, 2013 and December 31, 2012, our balance in equity method investees was $0.

We recognize realized losses when declines in the fair value of our investments below their cost basis are judged to be other-than-temporary. In determining whether a decline in fair value is other-than-temporary, we consider various factors including market price, investment ratings, the financial condition and near-term prospects of the issuer, the length of time and the extent to which the fair value has been less than the cost basis, and our intent and ability to hold the investment until maturity or for a period of time sufficient to allow for any anticipated recovery in market value. If it is judged that a decline in fair value is other-than-temporary, a realized loss equal to the excess of the cost basis over fair value is recorded in the consolidated statements of operations, and a new cost basis in the investment is established.

Fair Value Measurements - Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, we consider the principal or most advantageous market in which the asset or liability would transact, and if necessary, consider assumptions that market participants would use when pricing the asset or liability.

The accounting guidance for fair value measurement requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. Financial assets and financial liabilities are classified in the hierarchy based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.


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CLEARWIRE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)


The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, is as follows:

Level 1:

Quoted market prices in active markets for identical assets or liabilities.

Level 2:

Inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in less active markets; or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3:

Unobservable inputs that are significant to the fair value measurement and cannot be corroborated by market data.

If listed prices or quotes are not available, fair value is based upon internally developed or other available models that primarily use, as inputs, market-based or independently sourced market parameters, including but not limited to interest rate curves, volatilities, equity prices, and credit curves. We use judgment in determining certain assumptions that market participants would use in pricing the financial instrument, including assumptions about discount rates and credit spreads. The degree of management judgment involved in determining fair value is dependent upon the availability of observable market parameters. For assets or liabilities that trade actively and have quoted market prices or observable market parameters, there is minimal judgment involved in measuring fair value. When observable market prices and parameters are not fully available, management judgment is necessary to estimate fair value. In addition, changes in market conditions may reduce the availability and reliability of quoted prices or observable data. See Note 11, Fair Value, for further information.

Accounts Receivable  - Accounts receivables are stated at amounts due from subscribers and our wholesale partners net of an allowance for doubtful accounts. See Note 15, Related Party Transactions, for further information regarding accounts receivable balances with related parties.

Inventory  - Inventory primarily consists of customer premise equipment, which we refer to as CPE, and other accessories sold to retail subscribers and is stated at the lower of cost or net realizable value. Cost is determined under the average cost method. We record inventory write-downs for obsolete and slow-moving items based on inventory turnover trends and historical experience.

Property, Plant and Equipment  - Property, plant and equipment, excluding construction in progress, is stated at cost, net of accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets once the assets are placed in service. Our network construction expenditures are recorded as construction in progress until the network or other asset is placed in service, at which time the asset is transferred to the appropriate property, plant and equipment, which we refer to as PP&E, category. We capitalize costs of additions and improvements, including salaries, benefits and related overhead costs associated with constructing PP&E and interest costs related to construction. The estimated useful life of PP&E is determined based on historical usage of identical or similar equipment, with consideration given to technological changes and industry trends that could impact the network architecture and asset utilization. Leasehold improvements are recorded at cost and amortized over the lesser of their estimated useful lives or the related lease term, including renewals that are reasonably assured. Included within Network and base station equipment is equipment recorded under capital leases which is generally being amortized over the lease term. Maintenance and repairs are expensed as incurred.

PP&E is assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When such events or circumstances exist, we determine the recoverability of the asset's carrying value by estimating the expected undiscounted future cash flows that are directly associated with and that are expected to arise as a direct result of the use and disposal of the asset. If the expected undiscounted future cash flows are less than the carrying amount of the asset, a loss is recognized for the difference between the fair value of the asset and its carrying value. For purposes of testing impairment, our long-lived assets, including PP&E and intangible assets with definite useful lives, and our spectrum license assets are combined into a single asset group. This represents the lowest level for which there are identifiable cash flows which


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CLEARWIRE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)


are largely independent of other assets and liabilities, and management believes that utilizing these assets as a group represents the highest and best use of the assets and is consistent with management's strategy of utilizing our spectrum licenses on an integrated basis as part of our nationwide network. For PP&E, there were no impairment losses recorded in the 190 days ended July 9, 2013 and the years ended December 31, 2012 and 2011 .

In addition to the analyses described above, we periodically assess certain assets that have not yet been deployed in our networks, including equipment and cell site development costs, classified as construction in progress. This assessment includes the provision for differences between recorded amounts and the results of physical counts and the provision for excessive and obsolete equipment. See Note 4, Property, Plant and Equipment, for further information.

Internally Developed Software  - We capitalize costs related to computer software developed or obtained for internal use, and interest costs incurred during the period of development. Software obtained for internal use has generally been enterprise-level business and finance software customized to meet specific operational needs. Costs incurred in the application development phase are capitalized and amortized over the useful life of the software once the software has been placed in service, which is generally three years. We periodically assess capitalized software costs that have not been placed in service to determine whether any projects are no longer expected to be completed. The capitalized cost associated with any projects that are not expected to be completed are written down. Costs recognized in the preliminary project phase and the post-implementation phase, as well as maintenance and training costs, are expensed as incurred.

Spectrum Licenses - Spectrum licenses primarily include owned spectrum licenses with indefinite lives and favorable spectrum leases. Indefinite lived spectrum licenses acquired are stated at cost and are not amortized. While owned spectrum licenses in the United States are issued for a fixed time, renewals of these licenses have occurred routinely and at nominal cost. Moreover, we have determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our owned spectrum licenses and therefore, the licenses are accounted for as intangible assets with indefinite lives. The impairment test for intangible assets with indefinite useful lives consists of a comparison of the fair value of an intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess. The estimated fair value of spectrum licenses are determined by the use of the Greenfield direct value method, which estimates value through estimating discounted future cash flows of a hypothetical start-up business. Spectrum licenses with indefinite useful lives are assessed for impairment annually, or more frequently, if an event indicates that the asset might be impaired. We had no impairments for any of the periods presented for indefinite lived intangible assets.

Favorable spectrum leases are stated at cost, net of accumulated amortization, and are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying value of spectrum leases are amortized on a straight-line basis over their estimated useful lives or lease term, including expected renewal periods, as applicable. There were no impairment losses for favorable spectrum leases in the 190 days ended July 9, 2013 and the years ended December 31, 2012 and 2011 .

Other Intangible Assets  - Other intangible assets consist of subscriber relationships, trademarks, patents and other, and are stated at cost net of accumulated amortization. Amortization is calculated using either the straight-line method or an accelerated method over the assets' estimated remaining useful lives. Other intangible assets are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. There were no impairment losses for our other intangible assets in the 190 days ended July 9, 2013 and the years ended December 31, 2012 and 2011 .

Derivative Instruments and Hedging Activities  - It is our policy that hedging activities are executed only to manage exposures arising in the normal course of business and not for the purpose of creating speculative positions or trading. We record all derivatives on the balance sheet at fair value as either assets or liabilities. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and whether it qualifies for hedge accounting.


F-79

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Index to Consolidated Financial Statements



CLEARWIRE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)


During 2010, we issued exchangeable notes that included embedded exchange options, which we refer to as the Exchange Options, which qualified as derivative instruments and are required to be accounted for separately from the host debt instruments and recorded as derivative financial instruments at fair value. The embedded Exchange Options do not qualify for hedge accounting, and as such, all future changes in the fair value of these derivative instruments will be recognized currently in earnings until such time as the Exchange Options are exercised or expire. See Note 10, Derivative Instruments, for further information.

Debt Issuance Costs  - Debt issuance costs are initially capitalized as a deferred cost and amortized to interest expense under the effective interest method over the expected term of the related debt. Unamortized debt issuance costs related to extinguishment of debt are expensed at the time the debt is extinguished and recorded in other income (expenses), net in the consolidated statements of operations. Unamortized debt issuance costs are considered long-term and recorded in Other assets in the consolidated balance sheets.

Interest Capitalization  - We capitalize interest related to the construction of our network infrastructure assets, as well as the development of software for internal use. Capitalization of interest commences with pre-construction period administrative and technical activities, which includes obtaining leases, zoning approvals and building permits, and ceases when the construction is substantially complete and available for use or when we suspend substantially all construction activity. Interest is capitalized on construction in progress and software under development. Interest capitalization is based on rates applicable to borrowings outstanding during the period and the balance of qualified assets under construction during the period. Capitalized interest is reported as a cost of the network assets or software assets and depreciated over the useful lives of those assets. See Note 4, Property, Plant and Equipment.

Income Taxes  - We record deferred income taxes based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities using the tax rates expected to be in effect when the temporary differences reverse. Deferred tax assets are also recorded for net operating loss, capital loss, and tax credit carryforwards. Valuation allowances, if any, are recorded to reduce deferred tax assets to the amount considered more likely than not to be realized. We also apply a recognition threshold that a tax position is required to meet before being recognized in the financial statements. Our policy is to recognize any interest related to unrecognized tax benefits in interest expense or interest income. We recognize penalties as additional income tax expense.

Revenue Recognition - We primarily earn revenue by providing access to our high-speed wireless networks. Also included in revenue are sales of CPE and additional add-on services. In our 4G mobile broadband markets, we offer our services through retail channels and through our wholesale partners. We believe that the geographic diversity of our retail subscriber base minimizes the risk of incurring material losses due to concentration of credit risk. Sprint, our major wholesale customer, accounts for substantially all of our wholesale revenues to date, and comprises approximately 36% of total revenues during the 190 days ended July 9, 2013 and the years ended December 31, 2012 and 2011.

Revenue consisted of the following (in thousands):

190 Days Ended July 9,

Year Ended December 31,

2013

2012

2011

Retail and other revenue

$

424,723


$

796,225


$

759,805


Wholesale revenue

240,879


468,469


493,661


Total revenues

$

665,602


$

1,264,694


$

1,253,466


Revenue from retail subscribers is billed one month in advance and recognized ratably over the service period. Revenues associated with the sale of CPE and other equipment is recognized when title and risk of loss is transferred. Billed shipping and handling costs are classified as revenue.


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CLEARWIRE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)


Revenue arrangements with multiple deliverables are divided into separate units and, where available, revenue is allocated using vendor-specific objective evidence or third-party evidence of the selling prices; otherwise estimated selling prices are utilized. Any revenue attributable to the delivered elements is recognized currently in revenue and any revenue attributable to the undelivered elements is deferred and will be recognized as the undelivered elements are expected to be delivered over the remaining term of the agreements.

With the exception of the Universal Service Fee, which we refer to as USF, a regulatory surcharge, taxes and other fees collected from customers are excluded from revenues. USF is recorded on a gross basis and included in revenues when billed to customers. USF included in revenue for the 190 days ended July 9, 2013 and the years ended December 31, 2012 and 2011 were $0.9 million, $2.8 million and $3.9 million, respectively.

For the 190 days ended July 9, 2013 and the years ended December 31, 2012 and 2011, substantially all of our wholesale revenues were derived from our agreements with Sprint. In November 2011, we entered into the November 2011 4G MVNO Amendment. As a result, the minimum payments under the previous amendment to the 4G MVNO agreement entered into with Sprint in April 2011 were replaced with the provisions of the November 2011 4G MVNO Amendment. Under the November 2011 4G MVNO Amendment, Sprint is paying us $925.9 million for unlimited 4G mobile WiMAX services for resale to its retail subscribers in 2012 and 2013, approximately two-thirds of which was paid for service provided in 2012, and the remainder paid for service provided in 2013. As part of the November 2011 4G MVNO Amendment, we also agreed to usage based pricing for WiMAX services after 2013 and for LTE service beginning in 2012.

In 2011, revenues from wholesale subscribers were billed one month in arrears and were generally recognized as they are earned, based on terms defined in our commercial agreements with our wholesale partners. For 2011, substantially all of our wholesale revenues were derived from our agreement with Sprint.  Under that agreement, revenues were earned as Sprint utilized our network, with usage-based pricing that included volume discounts. 

Advertising Costs - Advertising costs are expensed as incurred or the first time the advertising occurs. Advertising expense was $22.6 million, $69.7 million and $76.4 million for the 190 days ended July 9, 2013 and the years ended December 31, 2012 and 2011 , respectively.

Operating Leases - We have operating leases for spectrum licenses, towers and certain facilities, and equipment for use in our operations. Certain of our spectrum licenses are leased from third-party holders of Educational Broadband Service, which we refer to as EBS, spectrum licenses granted by the FCC. EBS licenses authorize the provision of certain communications services on the EBS channels in certain markets throughout the United States. We account for these spectrum leases as executory contracts which are similar to operating leases. Signed leases which have unmet conditions required to become effective are not amortized until such conditions are met and are included in spectrum licenses in the accompanying consolidated balance sheets, if such leases require upfront payments. For leases containing scheduled rent escalation clauses, we record minimum rental payments on a straight-line basis over the term of the lease, including the expected renewal periods as appropriate. For leases containing tenant improvement allowances and rent incentives, we record deferred rent, which is classified as a liability, and that deferred rent is amortized over the term of the lease, including the expected renewal periods as appropriate, as a reduction to rent expense.

We periodically terminate unutilized tower leases, or when early termination is not available under the terms of the lease, we advise our landlords of our intention not to renew. At the time we notify our landlords of our intention not to renew, we recognize a cease-to-use tower lease liability based on the remaining lease rentals adjusted for any prepaid or deferred rent recognized under the lease, reduced by estimated sublease rentals, if any, that could be reasonably obtained for the property.

Discontinued Operations - As a result of a strategic decision to focus investment in the United States market, during the second quarter of 2011, we committed to sell our operations in Belgium, Germany and Spain. These businesses comprised substantially all of the remaining operations previously reported in our International segment. During the year ended December 31, 2012, we completed the sale of operations in Germany, Belgium and


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CLEARWIRE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)


Spain. Associated results of operations for the years ended December 31, 2012 and 2011 are separately reported as discontinued operations.

Summarized financial information for discontinued operations is show below (in thousands):

Year Ended December 31,

2012

2011

Total revenues

$

8,473


$

20,767


Loss from discontinued operations before income taxes

$

(1,185

)

$

(86,749

)

Income tax benefit (provision)

(167,176

)

4,939


Net loss from discontinued operations

(168,361

)

(81,810

)

Less: non-controlling interests in net loss from discontinued operations of consolidated subsidiaries

1,356


61,379


Net loss from discontinued operations attributable to Clearwire Corporation

$

(167,005

)

$

(20,431

)


New Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (FASB) issued authoritative guidance regarding

Disclosures about Offsetting Assets and Liabilities, which requires common disclosure requirements to allow investors to better compare and assess the effect of offsetting arrangements on financial statements prepared under U.S. GAAP with financial statements prepared under IFRS. The standard was effective beginning in the first quarter 2013, requires retrospective application, and only affects disclosures in the footnotes to the financial statements. In October 2012, the FASB tentatively decided to limit the scope of this authoritative guidance to derivatives, repurchase agreements, and securities lending and securities borrowing arrangements. In January 2013, the FASB issued additional clarifying guidance which limited the scope of the disclosure requirements to derivatives, repurchase agreements and reverse purchase agreements, and securities lending and securities borrowing transactions that are either offset in accordance with specific criteria contained in U.S. GAAP or subject to a master netting arrangement or similar agreement. Based on the scope revision, this authoritative guidance did not impact our existing disclosures.

In February 2013, the FASB issued authoritative guidance regarding Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which amends existing guidance and requires, in a single location, the presentation of the effects of certain significant amounts reclassified from each component of accumulated other comprehensive income based on its source and Statement of Comprehensive (Loss) Income line items affected by the reclassification. The guidance was effective beginning in the first quarter 2013 and did not have a material effect on our consolidated financial statements as amounts reclassified out of other comprehensive income, consisting primarily of the recognition of foreign currency gains, are immaterial for all periods presented.

In July 2013, the FASB issued authoritative guidance regarding Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force) , which amends existing guidance related to the financial presentation of unrecognized tax benefits by requiring an entity to net its unrecognized tax benefits against the deferred tax assets for all available same-jurisdiction loss or other tax carryforwards that would apply in settlement of the uncertain tax positions. The amendments will be effective beginning in the first quarter of 2014 with early adoption permitted, will be applied prospectively to all unrecognized tax benefits that exist at the effective date, and are not expected to have a material effect on our consolidated financial statements.



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3.

Investments

Investments as of July 9, 2013 and December 31, 2012 consisted of the following (in thousands):

July 9, 2013

December 31, 2012

Gross Unrealized

Gross Unrealized

Cost

Gains

Losses

Fair Value

Cost

Gains

Losses

Fair Value

Short-term




U.S. Government and Agency Issues

$

476,170


$

54


$

-


$

476,224


$

675,024


$

88


$

-


$

675,112


During the first quarter of 2012, we sold the Auction Market Preferred securities and recorded a gain of $3.3 million to Other income (expense), net on the consolidated statements of operations representing the total proceeds received. We no longer own any collateralized debt obligations or Auction Market Preferred securities.

No other-than-temporary impairment losses were recorded for the 190 days ended July 9, 2013 or the years ended December 31, 2012 or 2011 .


4.

Property, Plant and Equipment

Property, plant and equipment as of July 9, 2013 and December 31, 2012 consisted of the following (in thousands):

Useful

July 9,

December 31,

Lives (Years)

2013

2012

Network and base station equipment

5-15

$

3,400,849


$

3,396,376


Customer premise equipment

2

35,962


45,376


Furniture, fixtures and equipment

3-5

487,470


480,160


Leasehold improvements

Lesser of useful life or lease term

27,714


30,142


Construction in progress

N/A

184,022


156,630


4,136,017


4,108,684


Less: accumulated depreciation and amortization

(2,116,691

)

(1,849,680

)

$

2,019,326


$

2,259,004


190 Days Ended July 9,

Year Ended December 31,

2013

2012

2011

Supplemental information (in thousands):




Capitalized interest

$

6,751


$

6,598


$

18,823


Depreciation expense

$

362,777


$

749,765


$

665,344


We have entered into lease arrangements related to our network construction and equipment that meet the criteria for capital leases. At July 9, 2013 and December 31, 2012 , we have recorded capital lease assets with an original cost of $151.8 million and $112.8 million , respectively, within network and base station equipment.

Construction in progress is primarily composed of costs incurred during the process of completing network projects not yet placed in service. The balance at July 9, 2013 included $145.5 million of costs related to completing network projects not yet placed in service, $38.1 million of network and base station equipment not yet assigned to a project and $0.4 million of costs related to information technology, which we refer to as IT, and other corporate projects.


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Charges associated with Property, plant and equipment

We periodically assess assets that have not yet been deployed in our networks, including equipment and cell site development costs, classified as construction in progress. We evaluate for losses related to (1) shortage, or loss incurred in deploying such equipment, (2) reserve for excessive and obsolete equipment not yet deployed in the network, and (3) abandonment of network and corporate projects no longer expected to be deployed. In addition to charges incurred in the normal course of business, this assessment includes evaluating the impact of changes in our business plans and strategic network plans on those assets.

During 2012, we solidified our TDD-LTE network architecture, including identifying the sites at which we expect to overlay TDD-LTE technology in the first phase of our deployment. Any projects that are not required to deploy TDD-LTE technology at those sites, or that are no longer viable due to the development of the TDD-LTE network architecture, were abandoned and the related costs written down. In addition, any network equipment not required to support our network deployment plans or sparing requirements were written down to estimated salvage value.

We incurred the following charges associated with PP&E for the 190 days ended July 9, 2013 and the years ended December 31, 2012 and 2011 (in thousands):

190 Days Ended July 9,

Year Ended December 31,

2013

2012

2011

Abandonment of network projects no longer meeting strategic network plans

$

671


$

81,642


$

397,204


Abandonment of network projects associated with terminated leases

-


-


233,468


Abandonment of corporate projects

162


564


69,669


Total loss from abandonment of network and other assets

833


82,206


700,341


Charges for disposal and differences between recorded amounts and results of physical counts (1)(2)

5,315


30,961


56,188


Charges for excessive and obsolete equipment (1)

3,937


58,613


209,912


Total losses on property, plant and equipment

$

10,085


$

171,780


$

966,441


(1) Included in Cost of goods and services and network costs on the consolidated statements of operations.

(2)

For the year ended December 31, 2012, $14.0 million related to retail operations is included in Selling, general and administrative expense on the consolidated statements of operations.


5.

Spectrum Licenses

Owned and leased spectrum licenses as of July 9, 2013 and December 31, 2012 consisted of the following (in thousands):

July 9, 2013

December 31, 2012

Gross Carrying

Value

Accumulated

Amortization

Net Carrying

Value

Gross Carrying

Value

Accumulated

Amortization

Net Carrying

Value

Indefinite-lived owned spectrum

$

3,104,664


$

-


$

3,104,664


$

3,104,129


$

-


$

3,104,129


Spectrum leases and prepaid spectrum

1,371,737


(265,740

)

1,105,997


1,370,317


(237,317

)

1,133,000


Pending spectrum and transition costs

12,239


-


12,239


12,492


-


12,492


Total spectrum licenses

$

4,488,640


$

(265,740

)

$

4,222,900


$

4,486,938


$

(237,317

)

$

4,249,621


Indefinite-lived Owned Spectrum Licenses  - Spectrum licenses, which are issued on both a site-specific and a wide-area basis, authorize wireless carriers to use radio frequency spectrum to provide service to certain


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geographical areas in the United States. These licenses are generally acquired as an asset purchase or through a business combination. In some cases, we acquire licenses directly from the governmental authority.

Spectrum Leases and Prepaid Spectrum  - We also lease spectrum from third parties who hold the spectrum licenses. These leases are accounted for as executory contracts, which are treated like operating leases. Upfront consideration paid to third-party holders of these leased licenses at the inception of a lease agreement is capitalized as prepaid spectrum lease costs and is expensed over the term of the lease agreement, including expected renewal terms, as applicable. Favorable spectrum leases of $1.0 billion were recorded as an asset as a result of purchase accounting in November 2008 and are amortized over the lease term.

190 Days Ended July 9,

Year Ended December 31,

2013

2012

2011

Supplemental Information (in thousands):



Amortization of prepaid and other spectrum licenses

$

29,022


$

56,554


$

55,870


As of July 9, 2013 , future amortization of spectrum licenses, spectrum leases and prepaid lease costs (excluding pending spectrum and spectrum transition costs) is expected to be as follows (in thousands):

 Remainder of 2013

$

25,752


2014

53,928


2015

53,376


2016

52,588


2017

51,328


Thereafter

869,025


Total

$

1,105,997



6.

Other Intangible Assets

Other intangible assets as of July 9, 2013 and December 31, 2012 consisted of the following (in thousands):

July 9, 2013

December 31, 2012

Useful lives

Gross

Carrying

Value

Accumulated

Amortization

Net Carrying

Value

Gross

Carrying

Value

Accumulated

Amortization

Net Carrying

Value

Subscriber relationships

7 years

$

108,275


$

(91,888

)

$

16,387


$

108,275


$

(86,040

)

$

22,235


Trade names and trademarks

5 years

3,804


(3,550

)

254


3,804


(3,106

)

698


Patents and other

10 years

3,297


(1,734

)

1,563


3,270


(1,543

)

1,727


Total other intangibles

$

115,376


$

(97,172

)

$

18,204


$

115,349


$

(90,689

)

$

24,660


As of July 9, 2013 , the future amortization of other intangible assets is expected to be as follows (in thousands):


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Remainder of 2013

$

5,822


2014

7,740


2015

3,874


2016

329


2017

329


Thereafter

110


Total

$

18,204


190 Days Ended July 9,

Year Ended December 31,

2013

2012

2011

Supplemental Information (in thousands):




Amortization expense

$

6,483


$

16,232


$

20,096


We evaluate all of our patent renewals on a case by case basis, based on renewal costs.


7.

Supplemental Information on Liabilities

Current liabilities

Current liabilities consisted of the following (in thousands):

July 9,

December 31,

2013

2012

Accounts payable and accrued expenses:



Accounts payable

$

139,857


$

83,701


Accrued interest

55,813


42,786


Salaries and benefits

29,816


22,010


Business and income taxes payable

31,621


20,363


Other accrued expenses

3,560


8,995


Total accounts payable and accrued expenses

260,667


177,855


Other current liabilities:



Derivative instruments

-


5,333


Deferred revenues (1)

229,517


124,466


Current portion of long-term debt

44,510


36,080


Cease-to-use lease liability (1)

44,240


55,158


Other (1)

13,846


6,573


Total other current liabilities

332,113


227,610


Total

$

592,780


$

405,465



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Other long-term liabilities

Other long-term liabilities consisted of the following (in thousands):

July 9,

December 31,

2013

2012

Deferred rents associated with tower and spectrum leases (1)

$

795,597


$

717,741


Cease-to-use liability (1)

104,841


114,284


Deferred revenue (1)

13,750


83,887


Other (1)

47,140


47,441


Total

$

961,328


$

963,353


(1) See Note 15, Related Party Transactions, for further detail regarding balances with related parties.


8.

Income Taxes

The income tax provision (benefit) consists of the following for the 190 days ended July 9, 2013 and the years ended December 31, 2012 and 2011 (in thousands):

For the 190 Days Ended July 9,

Year Ended December 31,

2013

2012

2011

Current taxes:




International

$

-


$

-


$

(59

)

State

881


1,800


1,579


Total current taxes

881


1,800


1,520


Deferred taxes:




Federal

170,248


(182,520

)

96,292


State

14,351


(16,679

)

9,016


Total deferred taxes

184,599


(199,199

)

105,308


Income tax provision (benefit)

$

185,480


$

(197,399

)

$

106,828


The income tax rate computed using the federal statutory rates is reconciled to the reported effective income tax rate as follows:

For the 190 Days Ended July 9,

Year Ended December 31,

2013

2012

2011

Federal statutory income tax rate

35.0

 %

35.0

 %

35.0

 %

State income taxes (net of federal benefit)

0.3


0.7


0.7


Non-controlling interest

(19.9

)

(21.3

)

(27.5

)

Basis adjustments in investments in Clearwire Communications LLC

(11.1

)

1.1


(1.5

)

Other, net

0.8


(1.0

)

0.1


Allocation to items of equity other than other comprehensive income

12.0


(1.2

)

1.7


Valuation allowance

(37.3

)

(3.1

)

(12.4

)

Effective income tax rate

(20.2

)%

10.2

 %

(3.9

)%


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Components of deferred tax assets and liabilities as of July 9, 2013 and December 31, 2012 were as follows (in thousands):

July 9,

December 31,

2013

2012

Noncurrent deferred tax assets:



Net operating loss carryforward

$

886,883


$

553,195


Capital loss carryforward

86,319


221,453


Other assets

331


625


Total deferred tax assets

973,533


775,273


Valuation allowance

(852,968

)

(458,935

)

Net deferred tax assets

120,565


316,338


Noncurrent deferred tax liabilities:



Investment in Clearwire Communications

339,771


460,834


Other

(756

)

(504

)

Total deferred tax liabilities

339,015


460,330


Net deferred tax liabilities

$

218,450


$

143,992



We determine deferred income taxes based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities using the tax rates expected to be in effect when any temporary differences reverse or when the net operating loss, which we refer to as NOL, capital loss or tax credit carry-forwards are utilized.


As of July 9, 2013, excluding NOL carry-forwards that we permanently will be unable to use (as discussed below), we had United States federal tax NOL carry-forwards of approximately $2.01 billion of which $1.35 billion is subject to certain annual limitations imposed under Section 382 of the Internal Revenue Code. The NOL carry-forwards begin to expire in 2021. We had $435.4 million of tax NOL carry-forwards in foreign jurisdictions; $426.1 million have no statutory expiration date, and $9.3 million begins to expire in 2015. We also have federal capital loss carry-forwards of $227.5 million which is also subject to certain annual limitations imposed under Section 382 of the Internal Revenue Code. The capital loss carry-forwards begin to expire between 2015 and 2017. Our U.S. federal NOL carry-forwards and capital loss carry-forwards in total are subject to the annual limitations imposed under Section 382 of the Internal Revenue Code. We currently do not project that the Company will generate capital gain income to utilize the capital loss carry-forwards. However, if the Company generates sufficient capital gain income to enable utilization of capital loss carry-forwards in excess of $227.5 million, then NOL carry-forwards of up to $227.5 million may no longer be available to offset future taxable income.


We have recorded a valuation allowance against our deferred tax assets to the extent that we determined that it is more likely than not that these items will either expire before we are able to realize their benefits or that future deductibility is uncertain. As it relates to the United States tax jurisdiction, we determined that our temporary taxable difference associated with our investment in Clearwire Communications LLC, which we refer to as Clearwire Communications, will not fully reverse within the carry-forward period of the NOLs and accordingly does not represent relevant future taxable income.


Sprint Holdco LLC, which we refer to as Sprint, exchanged 57.5 million of Clearwire Communications Class B common interests, which we refer to as Class B Common Interests, and a corresponding number of shares of Class B Common Stock, for an equal number of shares of Class A Common Stock, and which we refer to as the Sprint Exchange, on July 5, 2013. Intel Capital Wireless Investment Corporation 2008A, which we refer to as Intel,


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exchanged 65.6 million Class B Common Interests, and a corresponding number of shares of Class B Common Stock, for an equal number of shares of Class A Common Stock, and which we refer to as the Intel Exchange, on July 9, 2013. The Sprint Exchange and the Intel Exchange resulted in significant changes to the financial statement and tax basis, respectively, that Clearwire has in its interest in Clearwire Communications, as well as, a decrease in the amount of temporary differences which will reverse within the NOL carryforward period (see discussion below).


Our deferred tax assets primarily represent NOL carry-forwards associated with Clearwire's operations prior to the formation of the Company on November 28, 2008 and the portion of the partnership losses allocated to Clearwire after the formation of the Company. The Company is subject to a change in control test under Section 382 of the Internal Revenue Code, that if met, would limit the annual utilization of any pre-change in control NOL carry-forward as well as the ability to use certain unrealized built in losses as future tax deductions. We believe that the Sprint Acquisition, which occurred on July 9, 2013, when combined with other issuances of our Class A Common Stock and certain third party investor transactions involving our Class A Common Stock since September 27, 2012, resulted in a change in control under Section 382 of the Internal Revenue Code. As a result of this change in control and the changes in control that occurred on September 27, 2012 and December 13, 2011, respectively, we believe that we permanently will be unable to use a significant portion of our NOL carry-forwards and credit carry-forwards, which are collectively referred to as tax attributes, that arose before the change in control to offset future taxable income. As a result of the annual limitations under Sections 382 and 383 of the Internal Revenue Code on the utilization of tax attributes following an ownership change, it was determined that approximately $2.03 billion of United States NOL carry-forwards will expire unutilized. The United States tax attributes are presented net of these limitations. In addition, subsequent changes of ownership for purposes of Sections 382 and 383 of the Internal Revenue Code could further diminish our use of remaining United States tax attributes.


We have recognized a deferred tax liability for the difference between the financial statement carrying value and the tax basis of the partnership interest. As it relates to the United States tax jurisdiction, we determined that our temporary taxable difference associated with our investment in the partnership will not completely reverse within the carry-forward period of the NOLs. The portion of such temporary difference that will reverse within the carry-forward period of the NOLs represents relevant future taxable income. Management has reviewed the facts and circumstances, including the history of NOLs, projected future tax losses, and determined that it is appropriate to record a valuation allowance against the portion of our deferred tax assets that are not deemed realizable. As a result of the Sprint Exchange and Intel Exchange, there was a net decrease in the amount of temporary difference which will reverse within the NOL carry-forward period. Therefore, management determined that it was appropriate to increase the valuation allowance recorded against our deferred tax assets, along with recording a corresponding deferred tax expense for our continuing operations. The income tax expense reflected in our condensed consolidated statements of operations for continuing operations primarily reflects United States deferred taxes and certain state taxes.


We file income tax returns for Clearwire and our subsidiaries in the United States federal jurisdiction and various state and foreign jurisdictions. As of July 9, 2013, the tax returns for Clearwire for the years 2003 through 2012 remain open to examination by the Internal Revenue Service and various state tax authorities.


Our policy is to recognize any interest related to unrecognized tax benefits in interest expense or interest income. We recognize penalties as additional income tax expense. As of July 9, 2013, we had no material uncertain tax positions and therefore accrued no interest or penalties related to uncertain tax positions.



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9.

Long-term Debt, Net

Long-term debt at July 9, 2013 and December 31, 2012 consisted of the following (in thousands):

July 9, 2013

Interest

Rates

Effective

Rate (1)

Maturities

Par

Amount

Net

Discount

Carrying

Value

Notes:




2015 Senior Secured Notes

12.00%

12.92%

2015

$

2,947,494


$

(23,622

)

$

2,923,872


2016 Senior Secured Notes

14.75%

15.36%

2016

300,000


-


300,000


Second-Priority Secured Notes

12.00%

12.42%

2017

500,000


-


500,000


Exchangeable Notes

8.25%

16.93%

2040

629,250


(153,009

)

476,241


Sprint Notes

1.00%

N/A (5)

2018

240,000


(227,265

)

12,735


Vendor Financing Notes (3)

LIBOR based (2)

6.37%

2014/2015

31,982


-


31,982


Capital lease obligations and other (3)

122,615


-


122,615


Total debt, net

$

4,771,341


$

(403,896

)

4,367,445


Less: Current portion of Vendor Financing Notes and capital lease obligations and other (4)



(44,510

)

Total long-term debt, net



$

4,322,935


_______________________________________

(1)

Represents weighted average effective interest rate based on year-end balances.

(2)

Coupon rate based on 3-month LIBOR plus a spread of 5.50% (secured) and 7.00% (unsecured). Included in the balance are unsecured notes with par amount of $15.2 million at July 9, 2013 .

(3)

As of July 9, 2013 , par amount of approximately $138.0 million is secured by assets classified as Network and base station equipment. The remaining par amount is unsecured.

(4)

Included in Other current liabilities on the consolidated balance sheet.

(5)

The discount on the Sprint Notes is accreted as interest expense on a straight-line basis over the life of the notes due to the magnitude of the initial discount. For further discussion, see Sprint Notes below.


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December 31, 2012

Interest

Rates

Effective

Rate (1)

Maturities

Par

Amount

Net

Discount

Carrying

Value

Notes:

2015 Senior Secured Notes

12.00%

12.92%

2015

$

2,947,494


$

(27,900

)

$

2,919,594


2016 Senior Secured Notes

14.75%

15.36%

2016

300,000


-


300,000


Second-Priority Secured Notes

12.00%

12.42%

2017

500,000


-


500,000


Exchangeable Notes

8.25%

16.93%

2040

629,250


(165,050

)

464,200


Vendor Financing Notes (3)

LIBOR based (2)

6.37%

2014/2015

32,056


(51

)

32,005


Capital lease obligations (3)

91,638


-


91,638


Total debt, net

$

4,500,438


$

(193,001

)

4,307,437


Less: Current portion of Vendor Financing Notes and capital lease obligations (4)

(36,080

)

Total long-term debt, net

$

4,271,357


_______________________________________

(1)

Represents weighted average effective interest rate based on year-end balances.

(2)

Coupon rate based on 3-month LIBOR plus a spread of 5.50% (secured) and 7.00% (unsecured). Included in the balance are unsecured notes with par amount of $4.6 million at December 31, 2012.

(3)

As of December 31, 2012 , par amount of approximately $118.8 million is secured by assets classified as Network and base station equipment.

(4)

Included in Other current liabilities on the consolidated balance sheet.

Notes

2015 Senior Secured Notes - During the fourth quarter of 2009, Clearwire Communications completed offerings of $2.52 billion 12% senior secured notes due 2015, which we refer to as the 2015 Senior Secured Notes. The 2015 Senior Secured Notes provide for bi-annual payments of interest in June and December. In connection with the issuance of the 2015 Senior Secured Notes, we also issued $252.5 million of notes to Sprint and Comcast with identical terms as the 2015 Senior Secured Notes in replacement of equal amounts of indebtedness under the senior term loan facility.

During December 2010, Clearwire Communications issued an additional $175.0 million of 2015 Senior Secured Notes with substantially the same terms.

The holders of the 2015 Senior Secured Notes have the right to require us to repurchase all of the notes upon the occurrence of certain change of control events or a sale of certain assets, at a price of 101% of the principal amount or 100% of the principal amount, respectively, plus any unpaid accrued interest to the repurchase date. Change of control excludes a change of control by permitted holders including, but not limited to, Sprint, any of its successors and its respective affiliates. As of December 1, 2012, we may redeem all or a part of the 2015 Senior Secured Notes by paying a make-whole premium as stated in the terms, plus any unpaid accrued interest to the repurchase date.

Our payment obligations under the 2015 Senior Secured Notes are guaranteed by certain domestic subsidiaries on a senior basis and secured by certain assets of such subsidiaries on a first-priority lien basis. The 2015 Senior Secured Notes contain limitations on our activities, which among other things include incurring additional indebtedness and guarantee indebtedness; making distributions or payment of dividends or certain other restricted payments or investments; making certain payments on indebtedness; entering into agreements that restrict distributions from restricted subsidiaries; selling or otherwise disposing of assets; merger, consolidation or sales of


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substantially all of our assets; entering transactions with affiliates; creating liens; issuing certain preferred stock or similar equity securities and making investments and acquiring assets.

See Note 16, Subsequent Events.

2016 Senior Secured Notes - In January 2012, Clearwire Communications completed an offering of senior secured notes with a par value of $300.0 million, due 2016 and bearing interest at 14.75%, which we refer to as the 2016 Senior Secured Notes. The 2016 Senior Secured Notes provide for bi-annual payments of interest in June and December.

The holders of the 2016 Senior Secured Notes have the right to require us to repurchase all of the notes upon the occurrence of specific kinds of changes of control at a price of 101% of the principal plus any unpaid accrued interest to the repurchase date. Change of control excludes a change of control by permitted holders including, but not limited to, Sprint, any of its successors and its respective affiliates. Under certain circumstances, Clearwire Communications will be required to use the net proceeds from the sale of assets to make an offer to purchase the 2016 Senior Secured Notes at an offer price equal to 100% of the principal amount plus any unpaid accrued interest.

Our payment obligations under the 2016 Senior Secured Notes are guaranteed by certain domestic subsidiaries on a senior basis and secured by certain assets of such subsidiaries on a first-priority lien basis. The 2016 Senior Secured Notes contain the same limitations on our activities as those of the 2015 Senior Secured Notes.

Second-Priority Secured Notes - During December 2010, Clearwire Communications completed an offering of $500.0 million 12% second-priority secured notes due 2017, which we refer to as the Second-Priority Secured Notes. The Second-Priority Secured Notes provide for bi-annual payments of interest in June and December.

The holders of the Second-Priority Secured Notes have the right to require us to repurchase all of the notes upon the occurrence of certain change of control events or a sale of certain assets at a price of 101% of the principal amount or 100% of the principal amount, respectively, plus any unpaid accrued interest to the repurchase date. Change of control excludes a change of control by permitted holders including, but not limited to, Sprint, any of its successors and its respective affiliates. Prior to December 1, 2013, we may redeem up to 35% of the aggregate principal amount of the Second-Priority Secured Notes at a redemption price of 112% of the aggregate principal amount, plus any unpaid accrued interest to the repurchase date. After December 1, 2014, we may redeem all or a part of the Second-Priority Secured Notes by paying a make-whole premium as stated in the terms, plus any unpaid accrued interest to the repurchase date.

Our payment obligations under the Second-Priority Secured Notes are guaranteed by certain domestic subsidiaries on a senior basis and secured by certain assets of such subsidiaries on a second-priority lien basis. The Second-Priority Secured Notes contain the same limitations on our activities as those of the 2015 Senior Secured Notes.

See Note 16, Subsequent Events.

Exchangeable Notes - During December 2010, Clearwire Communications completed offerings of $729.2 million 8.25% exchangeable notes due 2040, which we refer to as the Exchangeable Notes. The Exchangeable Notes provide for bi-annual payments of interest in June and December. The Exchangeable Notes are subordinated to the 2015 Senior Secured Notes and 2016 Senior Secured Notes and rank equally in right of payment with the Second-Priority Secured Notes.

The holders of the Exchangeable Notes have the right to exchange their notes for Class A Common Stock, at any time, prior to the maturity date. We have the right to settle the exchange by delivering cash or shares of Class A Common Stock, subject to certain conditions. The initial exchange rate for each note is 141.2429 shares per $1,000 note, equivalent to an initial exchange price of approximately $7.08 per share, subject to adjustments upon the occurrence of certain corporate events, which we refer to as the Exchangeable Notes Exchange Rate. Upon exchange, we will not make additional cash payment or provide additional shares for accrued or unpaid interest, make-whole premium or additional interest.


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The holders of the Exchangeable Notes have the right to require us to repurchase all of the notes upon the occurrence of a fundamental change, including a change of control, event at a price of 100% of the principal amount plus any unpaid accrued interest to the repurchase date. The holders who elect to exchange the Exchangeable Notes in connection with the occurrence of a fundamental change will be entitled to additional shares that are specified based on the date on which such event occurs and the price paid per share of Class A Common Stock in the fundamental change, with a maximum number of shares issuable per note not to exceed 169.4915 shares per $1,000 note. If our stock price is less than $5.90 per share, subject to certain adjustments, no additional shares shall be added to the exchange rate. Upon the consummation of the Sprint Acquisition, each $1,000 principal amount of Exchangeable Notes was changed into a right to exchange such principal amount of Exchange Notes into cash equal to the product of the Merger Consideration, multiplied by the Exchangeable Notes Exchange Rate.

The holders of the Exchangeable Notes have the option to require us to repurchase for cash the Exchangeable Notes on December 1, 2017, 2025, 2030 and 2035 at a price equal to 100% of the principal amount of the notes plus any unpaid accrued interest to the repurchase date. On or after December 1, 2017, we may, at our option, redeem all or part of the Exchangeable Notes at a price equal to 100% of the principal amount of the notes plus any unpaid accrued interest to the redemption date.

Our payment obligations under the Exchangeable Notes are guaranteed by certain domestic subsidiaries in the same priority as the Second-Priority Secured Notes.

Upon issuance of the Exchangeable Notes, we recognized a derivative liability representing the embedded exchange feature with an estimated fair value of $231.5 million and an associated debt discount on the Exchangeable Notes. The discount is accreted over the expected life, approximately 7 years, of the Exchangeable Notes using the effective interest rate method. See Note 10, Derivative Instruments, for additional discussion of the derivative liability.

During the first quarter of 2012, Clearwire and Clearwire Communications entered into securities purchase agreements with certain institutional investors, which we refer to as the Exchange Transaction, pursuant to which Clearwire issued 38.0 million shares of Class A Common Stock for an aggregate price of $83.5 million, which we refer to as the Purchase Price, and Clearwire Communications repurchased $100.0 million in aggregate principal amount, plus accrued but unpaid interest, of its Exchangeable Notes for a total price equal to the Purchase Price.

See Note 16, Subsequent Events

Sprint Notes - In connection with the Merger Agreement, we entered into the Note Purchase Agreement with the Issuers and Sprint, in which Sprint agreed to purchase from us at our election up to an aggregate principal amount of $800 million of notes maturing on June 1, 2018 in ten monthly installments of $80 million. Interest on the notes is 1% and is payable semi-annually in June and December. We elected to forego the January, February and June 2013 draws and elected to take the March, April and May 2013 draws and received $240 million from Sprint.

Sprint has the right to exchange notes held in connection with the Note Purchase Agreement for Clearwire Class A common stock or Clearwire Class B common stock and Clearwire Communications Class B common units at the applicable exchange rate at any time prior to the maturity date after July 9, 2013. The applicable exchange rate is 666.67 shares of Clearwire Class A common stock (or Clearwire Class B common stock and Clearwire Communications Class B common units) per $1,000 principal, equivalent to an exchange price of approximately $1.50 per share.

The Sprint Notes are guaranteed by the Issuers' existing wholly-owned domestic subsidiaries. The Sprint Notes are expressly subordinated to the 2015 and 2016 Senior Secured Notes; rank equally in right of payments with all the Issuers' and the guarantors' other existing and future senior indebtedness; and senior to any existing and future subordinated indebtedness. The Sprint Notes do not contain any financial or operating covenants.

The Sprint Notes contain a beneficial conversion feature, which we refer to as BCF. A BCF will be recorded if the Company's stock price is greater than the exchange price on the commitment date. Therefore, on the settlement


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date of each draw of the Sprint Notes, the BCF will be calculated based on the closing price on settlement date less the exchange price of $1.50 per share multiplied by the number of shares of Clearwire Class A common stock issued. The amount of the BCF for each draw is limited to the proceeds received for that draw. The BCF is recognized as a discount to the debt and an increase to Additional paid-in capital on the consolidated balance sheets. The debt discount will be accreted from the date of issuance through the stated maturity into Interest expense on the consolidated statements of operations on a straight-line basis.


See Note 16, Subsequent Events.


At July 9, 2013, we were in compliance with our debt covenants.

Vendor Financing Notes

We have a vendor financing facility, which we refer to as the Vendor Financing Facility, which allows us to obtain financing by entering into notes, which we refer to as Vendor Financing Notes. The Vendor Financing Notes mature during 2014 and 2015 and the coupon rates are based on 3-month LIBOR plus a spread of 5.50% and 7.00% for secured and unsecured notes, respectively.

Capital Lease Obligations

Certain of our network equipment have been acquired under capital lease facilities. At the inception of the capital lease, the lower of either the present value of the minimum lease payments required by the lease or the fair value of the equipment, is recorded as a capital lease obligation. The initial non-cancelable term of these capital leases are three to twelve years and may include one or more renewal options at the end of the initial lease term that may be exercised at our discretion. Lease payments for the initial lease term and any fixed renewal periods are established at the inception of the lease and interest expense is recognized using the effective interest rate method based on the rate imputed using the contractual terms of the lease.

Our lease agreements may contain change of control provisions. In certain agreements, a change of control may exclude a change of control by permitted holders including, but not limited to, Sprint, any of its successors and its respective affiliates. Other agreements may reference circumstances involving a change of control resulting in Clearwire's credit rating falling below "Caa1" as rated by Moody's Investors Service. Upon the occurrence of a change of control, the lessor may require payment of a predetermined casualty value of the leased equipment

Future Payments - For future payments on our long-term debt see Note 12, Commitments and Contingencies.

Interest Expense - Interest expense included in our consolidated statements of operations for the 190 days ended July 9, 2013 , and the years ended December 31, 2012 and 2011 , consisted of the following (in thousands):

190 Days Ended July 9,

Year Ended December 31,

2013

2012

2011

Interest coupon (1)

$

275,551


$

518,671


$

484,599


Accretion of debt discount and amortization of debt premium, net (2)

36,832


41,386


40,216


Capitalized interest

(6,751

)

(6,598

)

(18,823

)

Total interest expense

$

305,632


$

553,459


$

505,992


_______________________________________

(1)

The year ended December 31, 2012 included $2.5 million of coupon interest relating to the Exchangeable Notes, which was settled in the non-cash Exchange Transaction.

(2)

Includes non-cash amortization of deferred financing fees which are classified as Other assets on the consolidated balance sheets.



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10.

Derivative Instruments

The holders' exchange rights contained in the Exchangeable Notes constitute embedded derivative instruments that are required to be accounted for separately from the debt host instrument at fair value. As a result, upon the issuance of the Exchangeable Notes, we recognized Exchange Options, with an estimated fair value of $231.5 million as a derivative liability. As a result of the Exchange Transaction, $100.0 million in par value of the Exchangeable Notes were retired and the related Exchange Options, with a notional amount of 14.1 million shares, were settled at fair value. The Exchange Options are indexed to Class A Common Stock, have a notional amount of 88.9 million shares at July 9, 2013 and December 31, 2012 and mature in 2040 .

We do not apply hedge accounting to the Exchange Options. Therefore, gains and losses due to changes in fair value are reported in our consolidated statements of operations. At July 9, 2013, the Exchange Options' estimated fair value was $0 . At December 31, 2012, the Exchange Options' estimated fair value of $5.3 million was reported in Other current liabilities on our consolidated balance sheets. For the 190 days ended July 9, 2013 and the years ended December 31, 2012 and 2011 , we recognized gains of $5.3 million , $1.4 million and $159.7 million , respectively, from the changes in the estimated fair value in Gains on derivative instruments in our consolidated statements of operations. See Note 11, Fair Value, for information regarding valuation of the Exchange Options.


11.

Fair Value

The following is a description of the valuation methodologies and pricing assumptions we used for financial instruments measured and recorded at fair value on a recurring basis in our financial statements and the classification of such instruments pursuant to the valuation hierarchy.

Cash Equivalents and Investments

Where quoted prices for identical securities are available in an active market, we use quoted market prices to determine the fair value of investment securities and cash equivalents, and they are classified in Level 1 of the valuation hierarchy. Level 1 securities include U.S. Government Treasury Bills, actively traded U.S. Government Treasury Notes and money market mutual funds for which there are quoted prices in active markets or quoted net asset values published by the money market mutual fund and supported in an active market.

Investments are classified in Level 2 of the valuation hierarchy for securities where quoted prices are available for similar investments in active markets or for identical or similar investments in markets that are not active and we use "consensus pricing" from independent external valuation sources. Level 2 securities include U.S. Government Agency Discount Notes and U.S. Government Agency Notes.

Derivatives

The Exchange Options are classified in Level 3 of the valuation hierarchy. To estimate the fair value of the Exchange Options, we used an income approach based on valuation models, including option pricing models and discounted cash flow models. We maximized the use of market-based observable inputs in the models and developed our own assumptions for unobservable inputs based on management estimates of market participants' assumptions in pricing the instruments.

Upon the consummation of the Sprint Acquisition, each $1,000 principal amount of Exchangeable Notes was changed into a right to exchange such principal amount of Exchange Notes into an amount of cash equal to the product of (i) $5.00 multiplied by (ii) the exchange rate of 141.2429. Therefore, at the holder's option, each $1,000 of Exchangeable Notes can be tendered in exchange for $706.21 or a redemption price of $0.706. Given the equity underlying the Exchange Options no longer exists at the closing of the Sprint Acquisition and the value of the redemption is less than par (alternatively, the spot price of $5.00 is less than the strike price of the option of $7.08), the fair value of the Exchange Option immediately prior to the closing of the merger was $0.


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The following table summarizes our financial assets by level within the valuation hierarchy at July 9, 2013 (in thousands):

Quoted

Prices in

Active

Markets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Total

Fair Value

Financial assets:





Cash and cash equivalents

$

193,912


$

-


$

-


$

193,912


Short-term investments

$

251,244


$

224,980


$

-


$

476,224


Other assets - derivative warrant assets

$

-


$

-


$

215


$

215



The following table summarizes our financial assets and liabilities by level within the valuation hierarchy at December 31, 2012 (in thousands):

Quoted

Prices in

Active

Markets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Total

Fair Value

Financial assets:

Cash and cash equivalents

$

193,445


$

-


$

-


$

193,445


Short-term investments

$

375,743


$

299,369


$

-


$

675,112


Other assets - derivative warrant assets

$

-


$

-


$

211


$

211


Financial liabilities:

Other current liabilities - derivative liabilities (Exchange Options)

$

-


$

-


$

(5,333

)

$

(5,333

)

The following table presents the change in Level 3 financial assets and liabilities measured on a recurring basis for the 190 days ended July 9, 2013 (in thousands):

January 1, 2013

Acquisitions,
Issuances and
Settlements

Net Realized/Unrealized
Gains
Included in
Earnings

Net Realized/Unrealized
Gains (Losses)
Included in
Accumulated
Other
Comprehensive
Income

July 9, 2013

Net Unrealized Gains (Losses) Included in 2012 Earnings Relating to Instruments Held at July 9, 2013

Other assets:


Derivatives

$

211


$

-


$

4


(1)

$

-


$

215


$

4


Other current liabilities:

Derivatives

$

(5,333

)

$

-


$

5,333


(1)

$

-


$

-


$

5,333


_____________________________________

(1)

Included in Gain on derivative instruments in the consolidated statements of operations.


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The following table presents the change in Level 3 financial assets and liabilities measured on a recurring basis for the year ended December 31, 2012 (in thousands):

January 1, 2012

Acquisitions,
Issuances and
Settlements

Net Unrealized
Gains (Losses)
Included in
Earnings

Net Unrealized
Gains (Losses)
Included in
Accumulated
Other
Comprehensive
Income

December 31, 2012

Net Unrealized Gains (Losses) Included in 2011 Earnings Relating to Instruments Held at December 31, 2012

Other assets:

Derivatives

$

209


$

-


$

2


(1)

$

-


$

211


$

2


Other current liabilities:

Derivatives

$

(8,240

)

$

1,553


$

1,354


(1)

$

-


$

(5,333

)

$

1,778


______________________________________

(1)

Included in Gain on derivative instruments in the consolidated statements of operations.

The following is the description of the fair value for financial instruments we hold that are not subject to fair value recognition.

Debt Instruments

To estimate the fair value of the 2015 Senior Secured Notes, the 2016 Senior Secured Notes, the Second-Priority Secured Notes and the Exchangeable Notes, we used the average indicative price from several market makers.

A level of subjectivity is applied to estimate the fair value of the Sprint Notes. We use a market approach, benchmarking the price of the Sprint Notes to our Exchangeable Notes, adjusting for differences in critical terms such as tenor and strike price of the options as well as liquidity.

To estimate the fair value of the Vendor Financing Notes, we used an income approach based on the contractual terms of the notes and market-based parameters such as interest rates. A level of subjectivity is applied to estimate the discount rate used to calculate the present value of the estimated cash flows.

The following table presents the carrying value and the approximate fair value of our outstanding debt instruments at July 9, 2013 and 2012 (in thousands):

July 9, 2013

December 31, 2012

Carrying

Value

Fair Value

Carrying

Value

Fair Value

Notes:





2015 Senior Secured Notes

$

2,923,872


$

3,167,127


$

2,919,594


$

3,180,238


2016 Senior Secured Notes

$

300,000


$

412,500


$

300,000


$

414,375


Second-Priority Secured Notes

$

500,000


$

583,125


$

500,000


$

591,565


Exchangeable Notes (1)

$

476,241


$

696,164


$

464,200


$

689,598


Sprint Notes (2)

$

12,735


$

176,713


$

-


$

-


Vendor Financing Notes

$

31,982


$

32,458


$

32,005


$

31,802


_______________________________________

(1)

Carrying value as of July 9, 2013 and December 31, 2012 is net of $153.0 million and $165.1 million discount, respectively, arising from the separation of the Exchange Options from the debt host instrument. The fair value of the Exchangeable


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Notes incorporates the value of the exchange feature which we have recognized separately as a derivative on our consolidated balance sheets. See Note 9, Long-term Debt, Net for additional discussion.

(2)

Carrying value as of July 9, 2013 is net of $227.3 million discount arising from the BCF. See Note 9, Long-term Debt, Net for additional discussion.


12.

Commitments and Contingencies

Future minimum cash payments under obligations for our continuing operations listed below (including all optional expected renewal periods on operating leases) as of July 9, 2013 , are as follows (in thousands):

Total

2013

2014

2015

2016

2017

Thereafter,

including all

renewal periods

Long-term debt obligations (1)

$

4,648,725


$

12,282


$

12,729


$

2,954,464


$

300,000


$

500,000


$

869,250


Interest payments on long-term debt obligations (1)

2,751,195


257,101


513,316


512,700


158,563


114,313


1,195,202


Operating lease obligations

3,207,212


188,022


402,830


406,397


404,451


401,897


1,403,615


Spectrum lease obligations

6,792,437


84,210


182,997


187,529


193,215


207,181


5,937,305


Spectrum service credits and signed spectrum agreements

101,727


1,470


2,939


2,939


2,939


2,939


88,501


Capital lease obligations (2)

165,831


16,677


35,563


34,297


22,574


14,426


42,294


Purchase agreements

109,141


76,317


17,871


6,301


1,899


1,884


4,869


Total

$

17,776,268


$

636,079


$

1,168,245


$

4,104,627


$

1,083,641


$

1,242,640


$

9,541,036


_____________________________________

(1)

Principal and interest payments beyond 2017 represent potential principal and interest payments on the Exchangeable Notes beyond the expected repayment in 2017.

(2)

Payments include $41.3 million representing interest.

Expense recorded related to spectrum and operating leases was as follows (in thousands):

190 days ended July 9,

Year ended December 31,

2013

2012

2011

Spectrum lease expense

$

178,989


$

326,798


$

308,693


Operating lease expense

$

245,010


$

502,701


$

637,688



Operating lease obligations - Our commitments for non-cancelable operating leases consist mainly of leased sites, including towers and rooftop locations, and office space. Certain of the leases provide for minimum lease payments, additional charges and escalation clauses. Operating leases generally have initial terms of five to seven years with multiple renewal options for additional five-year terms totaling between 20 and 25 years. Operating lease obligations in the table above include all lease payments for the contractual lease term plus one renewal period and include any remaining future lease payments for leases where notice of intent not to renew has been sent as a result of the lease termination initiatives. The estimated lease term utilized for lease expense recognition purposes for most leases includes the initial non-cancelable term plus one renewal period.



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Spectrum lease obligations - Certain of the leases provide for minimum lease payments, additional charges and escalation clauses. Leased spectrum agreements have terms of up to 30 years and the weighted average remaining lease term at July 9, 2013 was approximately 23 years, including renewal terms. We expect that all renewal periods in our spectrum leases will be renewed by us.


Spectrum service credits - We have commitments to provide Clearwire services to certain lessors in launched markets, and to reimburse lessors for certain capital equipment and third-party service expenditures, over the term of the lease. We accrue a monthly obligation for the services and equipment based on the total estimated available service credits divided by the term of the lease. The obligation is reduced as actual invoices are presented and paid to the lessors. During the 190 days ended July 9, 2013 , and the years ended December 31, 2012 and 2011 we satisfied $1.2 million , $3.3 million and $4.5 million , respectively, related to these commitments. The maximum remaining commitment at July 9, 2013 is $101.7 million  and is expected to be incurred over the term of the related lease agreements, which generally range from 15-30 years.


Purchase agreements - Included in the table above are purchase commitments with take-or-pay obligations and/or volume commitments for equipment that are non-cancelable. The table above also includes other obligations we have that include minimum purchase commitments with certain suppliers over time for goods and services regardless of whether suppliers fully deliver them. They include, among other things, agreements for backhaul, subscriber devices and IT related and other services.

In addition, we are party to various arrangements that are conditional in nature and create an obligation to make payments only upon the occurrence of certain events, such as the actual delivery and acceptance of products or services. Because it is not possible to predict the timing or amounts that may be due under these conditional arrangements, no such amounts have been included in the table above. The table above also excludes blanket purchase order amounts where the orders are subject to cancellation or termination at our discretion or where the quantity of goods or services to be purchased or the payment terms are unknown because such purchase orders are not firm commitments.


Legal proceedings - As more fully described below, we are involved in a variety of lawsuits, claims, investigations and proceedings concerning intellectual property, business practices, commercial and other matters. We determine whether we should accrue an estimated loss for a contingency in a particular legal proceeding by assessing whether a loss is deemed probable and can be reasonably estimated. We reassess our views on estimated losses on a quarterly basis to reflect the impact of any developments in the matters in which we are involved. Legal proceedings are inherently unpredictable, and the matters in which we are involved often present complex legal and factual issues. We vigorously pursue defenses in legal proceedings and engage in discussions where possible to resolve these matters on terms favorable to us, including pursuing settlements where we believe it may be the most cost effective result for the Company. It is possible, however, that our business, financial condition and results of operations in future periods could be materially and adversely affected by increased litigation expense, significant settlement costs and/or unfavorable damage awards.

Throughout the legal proceedings disclosure, we use the terms Clearwire and the Company to refer to Clearwire Corporation, Clearwire Communications LLC, Clear Wireless LLC and its subsidiaries.


Consumer and Employment Purported Class Actions and Investigation(s)

In April 2009, a purported class action lawsuit was filed against Clearwire U.S. LLC in Superior Court in King County, Washington by a group of five plaintiffs (Chad Minnick, et al.). The lawsuit generally alleges that we disseminated false advertising about the quality and reliability of our services; imposed an unlawful early termination fee, which we refer to as ETF; and invoked allegedly unconscionable provisions of our Terms of Service to the detriment of subscribers. In November 2010, a purported class action lawsuit was filed against Clearwire by Angelo Dennings in the U.S. District Court for the Western District of Washington. The complaint generally alleges we slow network speeds when network demand is highest and that such network management violates our


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agreements with subscribers and is contrary to the Company's advertising and marketing claims. Plaintiffs also allege that subscribers do not review the Terms of Service prior to subscribing, and when subscribers cancel service due to network management, we charge an ETF or restocking fee that they claim is unconscionable under the circumstances. In March 2011, a purported class action was filed against Clearwire in the U.S. District Court for the Eastern District of California. The case, Newton v. Clearwire, Inc. [sic], alleges Clearwire's network management and advertising practices constitute breach of contract, unjust enrichment, unfair competition under California's Business and Professions Code Sections 17200 et seq., and violation of California's Consumers' Legal Remedies Act. Plaintiff contends Clearwire's advertisements of "no speed cap" and "unlimited data" are false and misleading. Plaintiff alleges Clearwire has breached its contracts with customers by not delivering the Internet service as advertised. Plaintiff also claims slow data speeds are due to Clearwire's network management practices. The parties collectively settled these three lawsuits, and the settlement is in the process of administration. We have accrued an estimated amount we anticipate to pay for the settlement in Other current liabilities. The amount accrued is considered immaterial to the financial statements.

In August 2012, Richard Wuest filed a purported class action against Clearwire in the California Superior Court, San Francisco County. Plaintiff alleges that Clearwire violated California's Invasion of Privacy Act, Penal Code 630, notably §632.7, which prohibits the recording of communications made from a cellular or cordless telephone without the consent of all parties to the communication. Plaintiff seeks class certification, statutory damages, injunctive relief, costs, attorney fees, and pre- and post- judgment interest. We removed the matter to federal court. On November 2, 2012, we filed an answer to the complaint. On May 31, 2013, Plaintiff filed a First Amended Complaint adding two Clearwire call vendors to the lawsuit. We filed an answer on July 15, 2013, and discovery has begun. Class certification briefing is scheduled for the spring of 2014. The litigation is in the early stages, its outcome is unknown and an estimate of any potential loss cannot be made at this time.


On September 6, 2012, the Washington State Attorney General's Office served on Clearwire Corporation a Civil Investigative Demand pursuant to RCW 19.86.110. The demand seeks information and documents in furtherance of the Attorney General Office's investigation of possible unfair trade practices, failure to properly disclose contractual terms, and misleading advertising. On October 22, 2012, we responded to the demand. The outcome of any investigation is unknown and an estimate of any potential loss cannot be made at this time.


In April 2013, Kenneth Lindsay, a former employee and others, filed a purported collective class action lawsuit in U.S. District Court for the District of Minnesota, against Clear Wireless LLC and Workforce Logic LLC. Plaintiffs allege claims individually and on behalf of a purported nationwide collective class under the Fair Labor Standards Act, which we refer to as the FSLA, from April 9, 2010 to present. The lawsuit alleges that defendants violated the FLSA, notably sections 201 and 207 and relevant regulations, regarding failure to pay minimum wage, failure to pay for hours worked during breaks or work performed "off the clock" before, during and after scheduled work shifts, overtime, improper deductions, and improper withholding of wages, commissions and bonuses. Plaintiffs seek back wages, unpaid wages, overtime, liquidated damages, attorney fees and costs. We filed an answer to the complaint on April 30, 2013. In January, 2014, the magistrate judge granted plaintiffs' motion for conditional class certification, and we have filed our objections to that ruling with the district judge. The litigation is in the early stages, its outcome is unknown and an estimate of any potential loss cannot be made at this time.


Shareholder Actions


On April 26, 2013, stockholders ACP Master, Ltd., Aurelius Capital Master, Ltd., and Aurelius Opportunities Fund II, LLC, filed suit in the Delaware Court of Chancery against the Company, its directors, Sprint and Sprint HoldCo., which we refer to as the ACP Action. On December 20, 2013, those entities filed an amended complaint, naming as defendants Sprint Corporation, Sprint Communications, Inc., the former directors of the Company, Starburst I, Inc., and SoftBank Corp. The amended ACP Action alleges that the directors of the Company breached their fiduciary duties in connection with the Sprint-Clearwire transaction (the "Merger"), that Sprint breached duties owed to the plaintiff stockholders by virtue of its status as a "controlling" stockholder, and that the other entities


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aided and abetted the alleged breaches of duties. The ACP action seeks a declaration that Sprint and the director defendants breached their fiduciary duties, and that the other entities aided and abetted that breach; a declaration that the Special Committee and majority-of-minority conditions were insufficient safeguards and that defendants bear a burden of proving the "entire fairness" of the transaction; a declaration that the Note Purchase Agreement was the product of defendants' breach of fiduciary duties; a finding that the Merger was unfair to the plaintiffs; rescission of the Merger; and unspecified damages, fees and expenses. The defendants moved to dismiss the ACP Action in January, 2014.


On October 23, 2013, the plaintiffs in the ACP Action filed a new lawsuit in the Delaware Court of Chancery against the Company. The complaint asks the court for an appraisal of the "fair value" of plaintiffs' stock in Clearwire, and an order that Clearwire pay plaintiffs the "fair value," plus interest and costs. The Company filed its answer in November, 2013, and discovery has begun. This case and the ACP Action are in the early stages, their outcome is unknown, and an estimate of potential losses cannot be made at this time.


In addition to the matters described above, we are often involved in certain other proceedings which seek monetary damages and other relief. Based upon information currently available to us, none of these other claims are expected to have a material effect on our business, financial condition or results of operations.


13.

Share-Based Payments

As of July 9, 2013 , there were 25,226,048  shares available for grant under the Clearwire Corporation 2008 Stock Compensation Plan, which we refer to as the 2008 Plan, which authorizes us to grant incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, which we refer to as RSUs, performance based RSUs and other stock awards to our employees, directors and consultants. Grants to be awarded under the 2008 Plan will be made available at the discretion of the Compensation Committee of the Board of Directors from authorized but unissued shares, authorized and issued shares reacquired, or a combination thereof.

Restricted Stock Units

We grant RSUs and performance based RSUs to certain officers and employees under the 2008 Plan. All RSUs generally have performance and service requirements or service requirements only, with vesting periods ranging from two to four years. The fair value of our RSUs is based on the grant-date fair market value of the common stock, which equals the grant date market price. Performance RSUs awarded in 2012 have one to two years performance periods and were granted once the performance objectives were established in the first quarter of 2012.


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A summary of the RSU activity for the 190 day period ended July 9, 2013 , and the years ended 2012 and 2011 is presented below:

Restricted Stock Units

Weighted-

Average

Grant Price

Fair Value (In Millions)

Future Performance and Service Required

Future Service Required

Future Performance and Service Required

Future Service Required

Future Performance and Service Required

Future Service Required

Restricted stock units outstanding - January 1, 2011

-


14,675,653


$

-


$

5.99


  Granted

-


10,300,239


-


4.06


$

-


$

44.9


Forfeited

-


(7,985,495

)

-


5.46


Vested

-


(6,240,674

)

-


5.54


$

-


$

24.1


Restricted stock units outstanding - December 31, 2011

-


10,749,723


$

-


$

4.79


Granted

6,619,937


17,857,468


1.96


2.25


$

13.0


$

40.2


Forfeited

(208,102

)

(2,141,799

)

1.99


3.32


Vested

-


(4,501,785

)

-


4.45


$

-


$

8.4


Restricted stock units outstanding - December 31, 2012

6,411,835


21,963,607


$

1.96


$

2.83


Granted

-


11,637,901


-


3.19


$

-


$

37.1


Forfeited

(1,691,445

)

(506,235

)

1.96


7.77


Vested

-


(7,913,173

)

-


2.72


$

-


$

26.0


Restricted stock units outstanding - July 9, 2013

4,720,390


25,182,100


$

1.96


$

3.03


As of July 9, 2013 , there were 29,902,490 RSUs outstanding and total unrecognized compensation cost of approximately $38.4 million , which is expected to be recognized over a weighted-average period of approximately 1.1 years.

Stock Options

We granted options to certain officers and employees under the 2008 Plan. All options generally vest over a four-year period and expire no later than ten years after the date of grant. The fair value of option grants was estimated on the date of grant using the Black-Scholes option pricing model.


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A summary of option activity from January 1, 2011 through July 9, 2013 is presented below:

Number of

Options

Weighted-

Average

Exercise

Price

Weighted-

Average

Remaining

Contractual

Term

(Years)

Options outstanding - January 1, 2011

16,443,241


$

11.80


5.69

Granted

-


-


Forfeited

(10,701,871

)

11.86


Exercised

(1,180,619

)

3.07


Options outstanding - December 31, 2011

4,560,751


$

13.98


4.24

Granted

-


-


Forfeited

(1,310,146

)

12.94


Exercised

-


-


Options outstanding - December 31, 2012

3,250,605


$

14.39


4.36

Granted

-


Forfeited

(66,732

)

16.18


Exercised

(64,750

)

3.06


Options outstanding - July 9, 2013

3,119,123


$

14.59


3.30

Vested and expected to vest - July 9, 2013

3,115,111


$

14.60


3.30

Exercisable outstanding - July 9, 2013

3,050,591


$

14.77


3.31


The intrinsic value of options exercised during the 190 days ended July 9, 2013 and the year ended December 31, 2011 was $0.1 million and $2.3 million , respectively. There were no option exercises during the period ended December 31, 2012. At July 9, 2013, the aggregate intrinsic value of options outstanding was $1.3 million


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Information regarding stock options outstanding and exercisable as of July 9, 2013 is as follows:

Options Outstanding

Options Exercisable

Exercise Prices

Number of

Options

Weighted
Average
Contractual
Life
Remaining

(Years)

Weighted
Average
Exercise Price

Number of Options

Weighted
Average
Exercise

Price

$3.00

6,666


.78

$

3.00


6,666


$

3.00


$3.03

610,750


4.68

3.03


610,750


3.03


$3.53 - $6.77

400,617


2.34

5.90


345,835


5.80


$7.41 - $7.87

57,500


3.26

7.57


43,750


7.57


$11.03

110,700


2.12

11.03


110,700


11.03


$15.00

200,665


2.50

15.00


200,665


15.00


$17.11

323,600


1.60

17.11


323,600


17.11


$18.00

509,497


3.14

18.00


509,497


18.00


$23.30

339,900


4.14

23.30


339,900


23.30


$25.00

559,228


3.64

25.00


559,228


25.00


Total

3,119,123


3.30

$

14.59


3,050,591


$

14.77



There were no options granted in 2013, 2012 and 2011. The total fair value of options vested during the 190 days ended July 9, 2013 and the years ended December 31, 2012 and 2011 was $0.5 million , $0.7 million and $6.6 million , respectively. The total unrecognized share based compensation costs related to non-vested stock options outstanding at July 9, 2013 was approximately $0.1 million and is expected to be recognized over a weighted average period of approximately four months .

Share-based compensation expense is based on the estimated grant-date fair value of the award and is recognized net of estimated forfeitures on those shares expected to vest, over a graded vesting schedule on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. Share-based compensation expense recognized for all plans for the 190 days ended July 9, 2013 , and for the years 2012 and 2011 is as follows (in thousands):

190 Days Ended July 9,

Year Ended December 31.

2013

2012

2011

Options

$

82


$

250


$

1,016


RSUs

20,890


28,616


25,535


Sprint Equity Compensation Plans

-


-


73


 Total

$

20,972


$

28,866


$

26,624



See Note 16, Subsequent Events.


14.

Stockholders' Equity

Class A Common Stock

The Class A Common Stock represents the common equity of Clearwire. The holders of the Class A Common Stock are entitled to one vote per share and, as a class, are entitled to 100% of any dividends or distributions made by Clearwire, with the exception of certain minimal liquidation rights provided to the Class B Common


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Stockholders, which are described below. Each share of Class A Common Stock participates ratably in proportion to the total number of shares of Class A Common Stock issued by Clearwire. Holders of Class A Common Stock have 100% of the economic interest in Clearwire and are considered the controlling interest for the purposes of financial reporting.

Upon liquidation, dissolution or winding up, the Class A Common Stock will be entitled to any assets remaining after payment of all debts and liabilities of Clearwire, with the exception of certain minimal liquidation rights provided to the Class B Common Stockholders, which are described below.

Class B Common Stock

The Class B Common Stock represents non-economic voting interests in Clearwire. Identical to the Class A Common Stock, the holders of Class B Common Stock are entitled to one vote per share. However, they do not have any rights to receive distributions other than stock dividends paid proportionally to each outstanding Class A and Class B Common Stockholder or upon liquidation of Clearwire, an amount equal to the par value per share, which is $0.0001 per share.

The sole holder, which is Sprint, is entitled to hold an equivalent number of Class B Common Interests, which, in substance, reflects their economic stake in Clearwire. This is accomplished through an exchange feature that provides the holder the right, at any time, to exchange one share of Class B Common Stock plus one Class B Common Interest for one share of Class A Common Stock.

On July 5, 2013, Sprint completed the exchange of 57.5 million shares of Class B Common Interests and a corresponding number of shares of Class B Common Stock for an equal number of shares of Class A Common Stock pursuant to the Amended and Restated Operating Agreement dated as of November 28, 2008 governing Clearwire Communications.

On July 9, 2013, Intel completed the exchange of 65.6 million shares of Class B Common Interests and a corresponding number of shares of Class B Common Stock for an equal number of shares of Class A Common Stock pursuant to the Amended and Restated Operating Agreement dated as of November 28, 2008 governing Clearwire Communications.


At July 9, 2013 , prior to consideration of the Sprint Acquisition, Sprint's economic interest in Clearwire and its subsidiaries is equal to its voting interest and was approximately 50.1% .


The following table lists the voting interests in Clearwire as of July 9, 2013 :

Investor

Class A Common Stock

Class A Common
Stock Voting % Outstanding

Class B Common Stock (1)

Class B Common
Stock % Voting Outstanding

Total

Total % Voting Outstanding

Sprint

88,422,958


10.7

%

650,587,860


100.0

%

739,010,818


50.1

%

Comcast

88,504,132


10.8

%

-


-

%

88,504,132


6.0

%

Intel

94,076,878


11.4

%

-


-

%

94,076,878


6.4

%

Other Shareholders

552,193,151


67.1

%

-


-


552,193,151


37.5

%

823,197,119


100

%

650,587,860


100

%

1,473,784,979


100

%

_______________________________________

(1)

The holders of Class B Common Stock hold an equivalent number of Class B Common Interests.


As a result of the Sprint Acquisition, each share of Clearwire Corporation common stock, par value $0.0001 per share, other than shares owned by Sprint, SoftBank Corp., or their affiliates, were converted into the right to receive $5.00 per share in cash.


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Clearwire Communications Interests

Clearwire is the sole holder of voting interests in Clearwire Communications. As such, Clearwire controls 100% of the decision making of Clearwire Communications and consolidates 100% of its operations. Clearwire also holds all of the outstanding Clearwire Communications Class A common interests representing 55.9% of the economics of Clearwire Communications as of July 9, 2013 . The holders of the Class B Common Interests own the remaining 44.1% of the economic interests. It is intended that at all times, the number of Clearwire Communications Class A common interests held by Clearwire will equal the number of shares of Class A Common Stock issued by Clearwire.

The non-voting Clearwire Communication units are designated as either Clearwire Communications Class A common interests, all of which are held by Clearwire, or Class B Common Interests, which are held by Sprint and Intel. Both classes of non-voting Clearwire Communication units participate in distributions of Clearwire Communications on an equal and proportionate basis.

The following shows the effects of the changes in Clearwire's ownership interests in Clearwire Communications (in thousands):

190 Days ended July 9,

Year ended December 31,

2013

2012

2011

Clearwire's loss from equity investees

$

(226,783

)

$

(758,705

)

$

(612,214

)

Increase/(decrease) in Clearwire's additional paid-in capital for issuance or conversion of Class B Common Stock

301,283


379,048


137,353


Increase in Clearwire's additional paid-in capital for issuance of Class A Common Stock

1,979


58,460


384,106


Other effects of changes in Clearwire's additional paid-in capital for issuance of Class A and Class B Common Stock

20,972


28,143


18,870


Net transfers from non-controlling interests

324,234


465,651


540,329


Change from net loss attributable to Clearwire and transfers to non-controlling interests

$

97,451


$

(293,054

)

$

(71,885

)

Dividend Policy

We have not declared or paid any cash dividends on Class A or Class B Common Stock. We currently expect to retain future earnings, if any, for use in the operations. We do not anticipate paying any cash dividends in the foreseeable future. In addition, covenants in the indentures governing our Senior Secured Notes impose significant restrictions on our ability to pay cash dividends to our stockholders.

Non-controlling Interests in Clearwire Communications

Clearwire Communications is consolidated into Clearwire because we hold 100% of the voting interest in Clearwire Communications. Therefore, the holders of the Class B Common Interests represent non-controlling interests in a consolidated subsidiary. As a result, the income (loss) consolidated by Clearwire is decreased in proportion to the outstanding non-controlling interests. The conversion of Class B Common Interests and the corresponding number of Class B Common Stock to Class A Common Stock is recorded in Issuance of common stock, net of issuance costs, and other capital transactions on our consolidated statement of stockholders' equity.


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Warrants


During the first quarter of 2013, we issued a warrant to purchase 2.0 million shares of Class A Common Stock at an exercise price of $1.75 per share related to a spectrum lease agreement. The warrants expire January 29, 2019. In connection with the Sprint Acquisition, the warrants were settled for a lump sum cash amount equal to the amount by which the Merger Consideration exceeded the exercise price of the warrants.

In addition, prior to the closing of the merger with Sprint, we had 375,000 warrants outstanding with an exercise price of $3.00. These warrants were settled for a lump sum cash amount equal to the amount by which the Merger Consideration exceeded the exercise price of the warrants.


15.

Related Party Transactions

We have a number of strategic and commercial relationships with third parties that have had a significant impact on our business, operations and financial results. These relationships have been with Sprint, Intel, Comcast, Time Warner Cable, Bright House, Google, Eagle River, and Ericsson, all of which are or have been related parties. Some of these relationships include agreements pursuant to which we sell wireless broadband services to certain of these related parties on a wholesale basis, which such related parties then resell to each of their respective end user subscribers. We sell these services at terms defined in our contractual agreements.

The following amounts for related party transactions are included in our consolidated financial statements (in thousands):

July 9,

December 31,

2013

2012

Accounts receivable

$

16,497


$

17,227


Prepaid assets and other assets

$

4,235


$

5,943


Accounts payable and accrued expenses

$

58,210


$

8,223


Other current liabilities:

Cease-to-use

$

5,650


$

5,497


Deferred revenue

$

200,698


$

96,161


Other

$

5,642


$

5,642


Other long-term liabilities:





Cease-to-use

$

37,541


$

36,793


Deferred revenue

$

13,750


$

83,887


Deferred rent

$

61,053


$

32,213


Other

$

334


$

2,821


190 days Ended July 9,

Year Ended December 31,

2013

2012

2011

Revenue

$

237,111


$

465,295


$

493,350


Cost of goods and services and network costs (inclusive of capitalized costs)

$

75,469


$

152,669


$

182,671


Selling, general and administrative (inclusive of capitalized costs)

$

26,749


$

50,193


$

31,453


Sprint Merger Agreement - On December 17, 2012, we entered into a Merger Agreement, pursuant to which Sprint agreed to acquire all of the outstanding shares of Class A and Class B Common Stock not currently owned by


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Sprint. On July 9, 2013, Sprint completed the acquisition of Clearwire Corporation and its subsidiaries. See Note 1, Description of Business

See Note 16, Subsequent Events.

Note Purchase Agreement - In connection with the Merger Agreement, on December 17, 2012, we and certain of our subsidiaries also entered into the Note Purchase Agreement, in which Sprint agreed to purchase from us at our election up to an aggregate principal amount of $800 million of 1.00% exchangeable notes due 2018, in ten monthly installments of $80.0 million each. We elected to forego the first two draws (January 2013 and February 2013) under the Note Purchase Agreement which reduced the aggregate principal amount available to $640 million. We elected to take the March, April and May draws and received $240.0 million from Sprint. In addition, we elected to forego the June draw. See Note 9, Long-term Debt, Net, for further information.

Rollover Notes - In connection with the issuance of the 2015 Senior Secured Notes, on November 24, 2009, we issued notes to Sprint and Comcast with identical terms as the 2015 Senior Secured Notes. From time to time, other related parties may hold portions of our long-term debts, and as debtholders, would be entitled to receive interest payments from us.

Relationships among Certain Stockholders, Directors, and Officers of Clearwire - Prior to the completion of the Sprint Acquisition, Sprint, through two wholly-owned subsidiaries, Sprint HoldCo and SN UHC 1, Inc., owns the largest interest in Clearwire with an effective voting and economic interest of approximately 50.1% . After the conversion of their Class B Common Interests and corresponding number of Class B Common Stock into Class A Common Stock, Comcast, Intel and Bright House together own voting interest in Clearwire of approximately 13.0% at July 9, 2013, prior to consummation of the merger with Sprint.

Clearwire, Sprint, Intel, Comcast and Bright House are party to the Equityholders' Agreement, which sets forth certain rights and obligations of the equityholders with respect to governance of Clearwire, transfer restrictions on our common stock, rights of first refusal and pre-emptive rights, among other things.

4G MVNO Agreement - We have a non-exclusive 4G MVNO agreement, which we refer to as the 4G MVNO Agreement, with Comcast MVNO II, LLC, TWC Wireless, LLC, Bright House and Sprint Spectrum L.P.,which we refer to as Sprint Spectrum. We sell wireless broadband services to the other parties to the 4G MVNO Agreement for the purposes of the purchasers' marketing and reselling our wireless broadband services to their respective end user subscribers. The wireless broadband services to be provided under the 4G MVNO Agreement include standard network services, and, at the request of any of the parties, certain non-standard network services. We sell these services at prices defined in the 4G MVNO Agreement.

S print Wholesale Relationship

Under the November 2011 4G MVNO Amendment, Sprint is paying us a fixed amount for unlimited 4G mobile WiMAX services for resale to its retail subscribers in 2013, a portion of which will be paid as an offset to principal and interest due under a $150.0 million promissory note issued by us to Sprint on January 3, 2012, which we refer to as the Sprint Promissory Note. The Sprint Promissory Note has an aggregate principal amount of $150.0 million and bears interest of 11.5% per annum. On January 2, 2013, we offset $83.6 million of principal and related accrued interest to reduce the principal amount we owe to Sprint under the promissory note to $75.0 million maturing on January 2, 2014. If not previously paid, Sprint may offset the amounts payable by us under the Sprint Promissory Note, including interest, against payments then due by Sprint to Clearwire Communications under the 4G MVNO Agreement, as amended. Because the Sprint Promissory Note was entered into in conjunction with the November 2011 4G MVNO Amendment, and amounts due may be offset against payments due under the November 2011 4G MVNO Amendment, it is treated as deferred revenue for accounting purposes, and associated interest costs are being recorded as a reduction to the payable by Sprint for unlimited WiMAX service in calendar year 2013.


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As part of the 4G MVNO Agreement, we also agreed to usage based pricing for WiMAX services after 2013 and for LTE service beginning in 2012. We also agreed that Sprint may re-wholesale wireless broadband services, subject to certain conditions and we agreed to operate our WiMAX network through calendar year 2015.

For the 190 days ended July 9, 2013 and the years ended December 31, 2012 and 2011, we received $231.2 million , $537.3 million and $434.3 million , respectively, from Sprint for 4G broadband wireless services. During the 190 days ended July 9, 2013 and the years ended December 31, 2012 and 2011, wholesale revenue recorded attributable to Sprint comprised approximately 36% of total revenues and substantially all of our wholesale revenues.

3G MVNO Agreement - We entered into a non-exclusive 3G MVNO agreement with Sprint Spectrum, which we refer to as the 3G MVNO Agreement, whereby Sprint agrees to sell its code division multiple access and mobile voice and data communications service for the purpose of resale to our retail customers. The data communications service includes Sprint's existing core network services, other network elements and information that enable a third party to provide services over the network, or core network enablers, and subject to certain limitations and exceptions, new core network services, core network enablers and certain customized services. For the 190 days ended July 9, 2013 and for the years ended December 31, 2012 and 2011, we paid $1.0 million , $4.4 million , and $17.8 million , respectively, to Sprint for 3G wireless services provided by Sprint to us.

Sprint Master Site Agreement - In November 2008, we entered into a master site agreement with Sprint, which we refer to as the Master Site Agreement, pursuant to which Sprint and we established the contractual framework and procedures for the leasing of tower and antenna collocation sites to each other. Leases for specific sites will be negotiated by Sprint and us on request by the lessee. The leased premises may be used by the lessee for any activity in connection with the provision of wireless communications services, including attachment of antennas to the towers at the sites. The term of the Master Site Agreement is ten years from the date the agreement was signed. The term of each lease for each specific site will be five years, but the lessee has the right to extend the term for up to an additional 20 years. The monthly fee will increase 3% per year. The lessee is also responsible for the utility costs and for certain additional fees. During the 190 days ended July 9, 2013 and the years ended December 31, 2012 and 2011, we made rent payments under this agreement of $35.5 million , $59.6 million , and $55.8 million , respectively.

Master Agreement for Network Services - In November 2008, we entered into a master agreement for network services, which we refer to as the Master Agreement for Network Services, with various Sprint affiliated entities, which we refer to as the Sprint Entities, pursuant to which the Sprint Entities and we established the contractual framework and procedures for us to purchase network services from Sprint Entities. We may order various services from the Sprint Entities, including IP network transport services, data center co-location, toll-free services and access to the following business platforms: voicemail, instant messaging services, location-based systems and media server services. The Sprint Entities will provide a service level agreement that is consistent with the service levels provided to similarly situated subscribers. Pricing is specified in separate product attachments for each type of service; in general, the pricing is based on the mid-point between fair market value of the service and the Sprint Entities' fully allocated cost for providing the service. The term of the Master Agreement for Network Services is five years, but we will have the right to extend the term for an additional five years. Additionally, in accordance with the Master Agreement for Network Services with the Sprint Entities, we assumed certain agreements for backhaul services that contain commitments that extend up to five years.

Ericsson, Inc. - Ericsson, provides network deployment services to us, including site acquisition and construction management services. In addition, during the second quarter of 2011, we entered into a managed services agreement with Ericsson to operate, maintain and support our network. Dr. Hossein Eslambolchi, who was a member of our Board of Directors prior to the Sprint Acquistion, had a consulting agreement with Ericsson. As part of his consulting agreement, Dr. Eslambolchi received payments for his services from Ericsson. He has not received any compensation directly from us related to his relationship with Ericsson. For the 190 days ended July 9,


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2013 and for the years ended December 31, 2012 and 2011, we paid $43.9 million , $76.9 million and $41.1 million , respectively, to Ericsson for network management services.


16.

Subsequent Events

We have evaluated subsequent events through February 24, 2014, the date in which the consolidated financial statements were issued. The following events occurred subsequent to July 9, 2013:


Sprint Acquisition


On July 9, 2013, Sprint completed the acquisition of Clearwire Corporation and its subsidiaries. As a result of the Sprint Acquisition and the resulting change in ownership and control, the acquisition method of accounting was applied by Sprint, pushed-down to us and included in our consolidated financial statements for all periods presented subsequent to the Acquisition Date. This resulted in a new basis of presentation based on the estimated fair values of our assets and liabilities for the successor period beginning as of the day following the consummation of the merger.


Long-term Debt, net


Using equity contributions from Sprint and available cash, we retired all of the 2015 Senior Secured Notes and all of the Second-Priority Secured Notes by December 2013.

In September 2013, Sprint exchanged all of the outstanding Sprint Notes for 160,000,800 shares of Class B Common Stock and the same amount of Class B Common Interests.


On October 17, 2013, the Issuers entered into a supplemental indenture related to the Exchangeable Notes that 1) permitted the periodic reports filed by Sprint (rather than Clearwire Corporation) with the SEC to satisfy the Issuers' reporting and related obligations in the event that Sprint and Sprint Communications unconditionally guarantee the Exchangeable Notes and 2) agreed to use commercially reasonable efforts to obtain credit ratings for the Exchangeable Notes by two national rating agencies.

On July 19, 2013, Clearwire Communications and Clearwire Finance, Inc. entered into a $3.0 billion credit agreement, which we refer to as the Sprint Credit Agreement, with Sprint Communications, Inc. where Sprint agrees to make revolving credit loans to us subject to the terms and conditions set forth in the agreement. The interest rate on outstanding loans is the LIBOR Rate as of the preceding interest payment date plus applicable margin of 4.00% to 4.75%, which is based on Moody's and S&P ratings. The interest payment date is the last business day of each fiscal quarter. The maturity date of the Sprint Credit Agreement is July 1, 2017. Under the Sprint Credit Agreement, we are not permitted to incur indebtedness unless agreed to by Sprint through written consent. As of December 31, 2013, the Sprint Credit Agreement had an outstanding balance of $315.5 million.

Share-Based Payments

In connection with the Sprint Acquisition, each outstanding and unexercised option to purchase shares of our Common Stock, whether or not then vested, was canceled in exchange for a lump sum cash amount equal to the amount, if any, by which the Merger Consideration exceeded the exercise price of such option, less applicable withholding taxes. In connection with the Sprint Acquisition, each RSU granted to a non-employee member of our board of directors, which we refer to as a Director RSU, was canceled in exchange for a lump sum cash payment equal to the product of the Merger Consideration, without interest, and the number of shares of Class A Common Stock subject to such Director RSU. In addition, each outstanding RSU granted prior to December 17, 2012 was converted into a right to receive a cash payment equal to the product of the Merger Consideration and the number of shares of Class A Common Stock subject to such unvested RSU, which we refer to as a Restricted Cash Account. On July 19, 2013, each holder of a Restricted Cash Account received a lump sum cash payment equal to 50% of the Restricted Cash Account balance, less applicable tax withholdings. The remaining balance of the Restricted Cash


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Table of Contents


Index to Consolidated Financial Statements



CLEARWIRE CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Account will vest and be paid upon the earlier of (i) the original vesting schedule of the unvested RSUs or (ii) the one year anniversary of the merger, provided however that the holder of a Restricted Cash Account will also be paid the remaining balance upon an involuntary termination of the holder's employment. In addition, each RSU granted after December 17, 2012, which we refer to as an Unvested 2013 RSU, was converted into a right to receive a cash payment equal to the product of the Merger Consideration, without interest, and the number of shares of Class A Common Stock subject to such Unvested 2013 RSU, each of which we refer to as a 2013 Restricted Cash Account. Each 2013 Restricted Cash Account is unvested and will vest and be paid out in accordance with the original vesting conditions of the award, provided however that the holder of a 2013 Restricted Cash Account will also be paid a pro-rata portion of the 2013 Restricted Cash Account upon an involuntary termination of the holder's employment.

Other Related Party Transactions

On July 19, 2013, Clearwire Corporation entered into a services agreement with Sprint/United Management Company, a wholly-owned subsidiary of Sprint Corporation, which we refer to as the Management Company, whereas the Management Company will provide certain services to Clearwire Corporation, the parent company to Clearwire Communications, and its subsidiaries for a stated management fee based on a schedule as set forth in the agreement. No fees are due in 2013.

On July 19, 2013, Clearwire Communications, including direct and indirect subsidiaries as defined in the agreement, which we refer to as the Licensees, entered into a spectrum usage agreement with Sprint Spectrum, L.P., a wholly-owned subsidiary of Sprint Corporation, and their affiliated entities as defined in the agreement, which we refer to as the Users. The Licensees will allow the Users to use the spectrum holdings of Licensees as equipment is deployed by Users using such spectrum subject to the terms defined in the agreement. Users shall pay Licensees an annual spectrum use fee as set forth in the agreement, beginning in 2014.

On January 2, 2014, we offset against payments due under the November 2011 4G MVNO Amendment, treated as deferred revenue, $83.6 million of principal and related accrued interest to repay the amount owed by us under the Sprint Promissory Note.




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