New Sprint Q3 2013 10-Q
Table of Contents    

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
—————————————————————
FORM 10-Q
—————————————————————
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2013
or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to  
   
Commission File number 1-04721
—————————————————————
SPRINT CORPORATION
(Exact name of registrant as specified in its charter)
—————————————————————
Delaware
46-1170005
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
6200 Sprint Parkway, Overland Park, Kansas
66251
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (855) 848-3280
—————————————————————
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
 
Accelerated filer
o
Non-accelerated filer
o
 (Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes  o    No   x
COMMON SHARES OUTSTANDING AT NOVEMBER 1, 2013:
Sprint Corporation Common Stock
3,932,164,011

 

Table of Contents

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




Table of Contents

PART I —FINANCIAL INFORMATION

Item 1.
Financial Statements (Unaudited)

SPRINT CORPORATION
CONSOLIDATED BALANCE SHEETS  
 
Successor
 
 
Predecessor
 
September 30,
2013
 
December 31,
2012
 
 
December 31,
2012
 
(in millions, except share and per share data)
ASSETS
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
$
6,058

 
$
5

 
 
$
6,351

Restricted cash
3,050

 
—

 
 
—

Short-term investments
1,436

 
—

 
 
1,849

Accounts and notes receivable, net of allowance for doubtful accounts of $95, $0 and $183
3,193

 
6

 
 
3,658

Device and accessory inventory
1,028

 
—

 
 
1,200

Deferred tax assets
167

 
—

 
 
1

Prepaid expenses and other current assets
498

 
—

 
 
700

Total current assets
15,430

 
11

 
 
13,759

Investments
137

 
3,104

 
 
1,053

Property, plant and equipment, net
15,312

 
—

 
 
13,607

Intangible assets
 
 
 
 
 
 
Goodwill
6,819

 
—

 
 
359

FCC licenses and other
41,459

 
—

 
 
20,677

Definite-lived intangible assets, net
8,483

 
—

 
 
1,335

Other assets
337

 
—

 
 
780

Total assets
$
87,977

 
$
3,115

 
 
$
51,570

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 
 
 
 
 
 
Accounts payable
$
3,777

 
$
—

 
 
$
3,487

Accrued expenses and other current liabilities
6,042

 
4

 
 
5,008

Current portion of long-term debt, financing and capital lease obligations
1,131

 
—

 
 
379

Total current liabilities
10,950

 
4

 
 
8,874

Long-term debt, financing and capital lease obligations
32,420

 
—

 
 
23,962

Deferred tax liabilities
14,263

 
1

 
 
7,047

Other liabilities
3,861

 
—

 
 
4,600

Total liabilities
61,494

 
5

 
 
44,483

Commitments and contingencies

 
 
 
 

Stockholders' equity:
 
 
 
 
 
 
Common stock (Successor), voting, par value $0.01 per share, 9.0 billion authorized, 3.931 billion issued at September 30, 2013
39

 
—

 
 
—

Common stock (Predecessor), voting, par value $2.00 per share, 6.5 billion authorized, 3.010 billion issued at December 31, 2012
—

 
—

 
 
6,019

Paid-in capital
27,289

 
3,137

 
 
47,016

Accumulated deficit
(849
)
 
(27
)
 
 
(44,815
)
Accumulated other comprehensive income (loss)
4

 
—

 
 
(1,133
)
Total stockholders' equity
26,483

 
3,110

 
 
7,087

Total liabilities and stockholders' equity
$
87,977

 
$
3,115

 
 
$
51,570

See Notes to the Consolidated Financial Statements

1
Table of Contents

SPRINT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
 
 
Successor
 
 
Predecessor
 
Nine Months Ended
 
Three Months Ended
 
 
191 Days Ended
 
10 Days Ended
 
Nine Months Ended
 
Three Months Ended
 
September 30,
 
 
July 10,
 
September 30,
 
2013
 
2013
 
 
2013
 
2013
 
2012
 
2012
 
(in millions, except per share amounts)
Net operating revenues
$
7,749

 
$
7,749

 
 
$
18,602

 
$
932

 
$
26,340

 
$
8,763

Net operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services and products (exclusive of depreciation and amortization included below)
4,342

 
4,342

 
 
10,545

 
567

 
15,189

 
5,093

Selling, general and administrative
2,295

 
2,259

 
 
5,067

 
289

 
7,208

 
2,391

Severance, exit costs and asset impairments
103

 
103

 
 
652

 
(5
)
 
290

 
22

Depreciation
942

 
942

 
 
3,098

 
113

 
4,820

 
1,411

Amortization
461

 
461

 
 
147

 
8

 
230

 
77

Other, net
—

 
—

 
 
(22
)
 
—

 
(282
)
 
—

 
8,143

 
8,107

 
 
19,487

 
972

 
27,455

 
8,994

Operating loss
(394
)
 
(358
)
 
 
(885
)
 
(40
)
 
(1,115
)
 
(231
)
Other (expense) income:
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(416
)
 
(416
)
 
 
(1,135
)
 
(275
)
 
(996
)
 
(377
)
Equity in losses of unconsolidated investments, net
—

 
—

 
 
(482
)
 
(23
)
 
(927
)
 
(208
)
Gain on previously-held equity interests
—

 
—

 
 
2,926

 
2,926

 
—

 
—

Other income, net
18

 
165

 
 
19

 
2

 
144

 
96

 
(398
)
 
(251
)
 
 
1,328

 
2,630

 
(1,779
)
 
(489
)
(Loss) income before income taxes
(792
)
 
(609
)
 
 
443

 
2,590

 
(2,894
)
 
(720
)
Income tax expense
(30
)
 
(90
)
 
 
(1,601
)
 
(1,508
)
 
(110
)
 
(47
)
Net (loss) income
$
(822
)
 
$
(699
)
 
 
$
(1,158
)
 
$
1,082

 
$
(3,004
)
 
$
(767
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic net (loss) income per common share
$
(0.25
)
 
$
(0.18
)
 
 
$
(0.38
)
 
$
0.35

 
$
(1.00
)
 
$
(0.26
)
Diluted net (loss) income per common share
$
(0.25
)
 
$
(0.18
)
 
 
$
(0.38
)
 
$
0.30

 
$
(1.00
)
 
$
(0.26
)
Basic weighted average common shares outstanding
3,318

 
3,802

 
 
3,027

 
3,086

 
3,001

 
3,003

Diluted weighted average common shares outstanding
3,318

 
3,802

 
 
3,027

 
3,640

 
3,001

 
3,003

 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
Net unrealized holding gains (losses) on securities and other
$
4

 
$
4

 
 
$
(12
)
 
$
(47
)
 
$
(5
)
 
$
1

Net unrecognized net periodic pension and other postretirement benefits
—

 
—

 
 
35

 
5

 
31

 
14

Other comprehensive income (loss)
4

 
4

 
 
23

 
(42
)
 
26

 
15

Comprehensive (loss) income
$
(818
)
 
$
(695
)
 
 
$
(1,135
)
 
$
1,040

 
$
(2,978
)
 
$
(752
)
 
See Notes to the Consolidated Financial Statements

2
Table of Contents

SPRINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Successor
 
 
Predecessor
 
Nine Months Ended
 
 
191 Days Ended
 
Nine Months Ended
 
September 30,
 
 
July 10,
 
September 30,
 
2013
 
 
2013
 
2012
 
(in millions)
Cash flows from operating activities:
 
 
 
 
 
 
Net loss
$
(822
)
 
 
$
(1,158
)
 
$
(3,004
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
 
Asset impairments
—

 
 
—

 
84

Depreciation and amortization
1,403

 
 
3,245

 
5,050

Provision for losses on accounts receivable
119

 
 
194

 
413

Share-based and long-term incentive compensation expense
58

 
 
37

 
57

Deferred income tax expense
22

 
 
1,586

 
142

Equity in losses of unconsolidated investments, net
—

 
 
482

 
927

Gain on previously-held equity interests
—

 
 
(2,926
)
 
—

Interest expense related to beneficial conversion feature on convertible bond
—

 
 
247

 
—

Gains from asset dispositions and exchanges
—

 
 
—

 
(29
)
Contribution to pension plan
—

 
 
—

 
(108
)
Spectrum hosting contract termination
—

 
 
—

 
(236
)
Other changes in assets and liabilities:
 
 
 
 
 
 
Accounts and notes receivable
(65
)
 
 
150

 
(526
)
Inventories and other current assets
(72
)
 
 
298

 
(348
)
Accounts payable and other current liabilities
167

 
 
280

 
395

Non-current assets and liabilities, net
(153
)
 
 
207

 
55

Other, net
43

 
 
29

 
(89
)
Net cash provided by operating activities
700

 
 
2,671

 
2,783

Cash flows from investing activities:
 
 
 
 
 
 
Capital expenditures
(1,878
)
 
 
(3,140
)
 
(2,784
)
Expenditures relating to FCC licenses
(31
)
 
 
(125
)
 
(152
)
Acquisitions, net of cash acquired
(14,112
)
 
 
(4,039
)
 
—

Investment in Clearwire (including debt securities)
—

 
 
(308
)
 
(128
)
Proceeds from sales and maturities of short-term investments
479

 
 
2,445

 
958

Purchases of short-term investments
(815
)
 
 
(1,221
)
 
(1,492
)
Increase in restricted cash
(3,050
)
 
 
—

 
—

Other, net
—

 
 
3

 
13

Net cash used in investing activities
(19,407
)
 
 
(6,385
)
 
(3,585
)
Cash flows from financing activities:
 
 
 
 
 
 
Proceeds from debt and financings
6,826

 
 
204

 
3,577

Repayments of debt and capital lease obligations
(497
)
 
 
(362
)
 
(2,508
)
Debt financing costs
(107
)
 
 
(11
)
 
(90
)
Proceeds from issuance of common stock and warrants, net
18,552

 
 
60

 
21

Other, net
(14
)
 
 
—

 
—

Net cash provided by (used in) financing activities
24,760

 
 
(109
)
 
1,000

Net increase (decrease) in cash and cash equivalents
6,053

 
 
(3,823
)
 
198

Cash and cash equivalents, beginning of period
5

 
 
6,351

 
5,447

Cash and cash equivalents, end of period
$
6,058

 
 
$
2,528

 
$
5,645

See Notes to the Consolidated Financial Statements

3
Table of Contents

SPRINT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in millions)
 
 
Predecessor
 
Common Stock
 
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
 
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
 
Common Stock
 
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income
 
Total
 
Shares
 
Amount
 
Balance, December 31, 2012
—

 
$
—

 
$
3,137

 
$
(27
)
 
$
—

 
$
3,110

Expenses incurred by Softbank for the benefit of Sprint
 
 
 
 
97

 
 
 
 
 
97

Net loss
 
 
 
 
 
 
(822
)
 
 
 
(822
)
Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
4

 
4

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
)
Issuance of common stock, net
4

 
—

 
12

 
—

 
 
 
12

Share-based compensation expense
 
 
 
 
19

 
 
 
 
 
19

Balance, September 30, 2013
3,931

 
$
39

 
$
27,289

 
$
(849
)
 
$
4

 
$
26,483


See Notes to the Consolidated Financial Statements

4
Table of Contents

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



5
Table of Contents




SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial information. All normal recurring adjustments considered necessary for a fair presentation have been included. Certain disclosures normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) have been omitted. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes contained in the Sprint Nextel Corporation (Sprint Nextel) annual report on Form 10-K and the Starburst II Form S-4/A dated March 15, 2013 for the year ended December 31, 2012 and the subsequent Sprint Nextel and Sprint Corporation quarterly reports on Form 10-Q through June 30, 2013.
On July 10, 2013, SoftBank Corp., a kabushiki kaisha organized under the laws of Japan, and certain of its wholly-owned subsidiaries (together, “SoftBank”) completed the merger (SoftBank Merger) contemplated by the Agreement and Plan of Merger, dated as of October 15, 2012, as amended on November 29, 2012, April 12, 2013 and June 10, 2013 (as amended, the Merger Agreement) and the Bond Purchase Agreement, dated as of October 15, 2012, as amended on June 10, 2013 (as amended, the Bond Agreement) (See Note 3. Significant Transactions). Pursuant to the Bond Agreement, Sprint Communications issued a convertible bond (Bond) to Starburst II, Inc. (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 common stock at $5.25 per share at consummation of the SoftBank Merger on July 10, 2013. As a result of the SoftBank Merger and subsequent open market stock purchases, SoftBank owned approximately 80% of the outstanding voting common stock of Sprint Corporation (formerly known as Starburst II, Inc., a wholly owned subsidiary of SoftBank prior to completion of the SoftBank Merger and the acquiring company in connection with the consummation of the SoftBank Merger). Following the consummation of the SoftBank Merger, Sprint Corporation became the parent company of Sprint Nextel and Sprint Nextel changed its name to Sprint Communications, Inc. (Sprint Communications). In connection with the consummation 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 consummation of the SoftBank Merger. As a result of the SoftBank Merger and the resulting change in ownership and control by SoftBank, Sprint Corporation applied the acquisition method of accounting as of the merger date, which resulted in a new basis of presentation based on the estimated fair values of assets acquired and liabilities assumed from Sprint Nextel for the successor period beginning as of the day following the consummation of the SoftBank Merger.
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 relating to Sprint Communications for periods prior to the SoftBank Merger (Predecessor) and the successor period (Successor) relating to Sprint Corporation (formerly Starburst II). The Successor financial information includes the activity and accounts of Sprint Corporation as of and for the three and nine-month periods ended September 30, 2013, which includes the activity and accounts of Sprint Communications, prospectively, beginning on July 11, 2013. As a result of the SoftBank Merger, the Successor period results of operations for the three and nine-month periods ended September 30, 2013 primarily reflect the accounts and operating activities of Sprint Communications, inclusive of the consolidation of Clearwire, for an 82 day period (Post-merger period), representing the results of operations from July 11, 2013 through September 30, 2013. The accounts and operating activity for the Successor period from January 1, 2013 to July 10, 2013 consist solely of the activity of Starburst II prior to the consummation of the SoftBank Merger, which primarily relates to its investment in the Bond issued by Sprint Communications in connection with the SoftBank Merger. 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 preliminary valuation of assets acquired and liabilities assumed at fair value at the time of the SoftBank Merger, 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. See Note 3. Significant Transactions for additional information regarding the SoftBank Merger.

6
Table of Contents




SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.
On July 9, 2013, Sprint Communications completed the acquisition of the remaining equity interests in Clearwire Corporation (Clearwire) that it did not already own (Clearwire Acquisition), in accordance with the merger agreement with Clearwire dated as of December 17, 2012, as amended as of April 18, 2013, May 21, 2013, and June 20, 2013 (Clearwire Merger Agreement). As a result of the Clearwire Acquisition, Sprint Communications acquired all of the remaining equity interests in Clearwire that it did not own for approximately $3.5 billion, net of cash acquired, or $5.00 per share. The consideration paid was allocated to assets acquired and liabilities assumed based on their estimated preliminary fair values at the time of the Clearwire Acquisition. 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 closing date of the SoftBank Merger.
The preparation of the unaudited interim consolidated financial statements requires management of the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities at the date of the unaudited interim consolidated financial statements. These estimates are inherently subject to judgment and actual results could differ.
Certain prior period amounts have been reclassified to conform to the current period presentation.

Note 2.
New Accounting Pronouncements
In 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 periodic pension costs and realized holding gains and losses, 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.


7
Table of Contents




SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 3.
Significant Transactions
Acquisition of Assets from U.S. Cellular
On November 6, 2012, Sprint Communications entered into a definitive agreement with United States Cellular Corporation (U.S. Cellular) to acquire personal communications services (PCS) spectrum and customers in parts of Illinois, Indiana, Michigan, Missouri and Ohio, including the Chicago and St. Louis markets, for $480 million in cash. Sprint Communications agreed, in connection with the acquisition, to reimburse U.S. Cellular for certain network shut-down costs in these markets. These costs are expected to be approximately $160 million on a net present value basis, but in no event will Sprint Communications' reimbursement obligation exceed $200 million on an undiscounted basis. The additional spectrum will be used to supplement Sprint's coverage in these areas. In addition, Sprint Communications and U.S. Cellular entered into transition services agreements for services to be provided by U.S. Cellular during the period after closing and prior to the transfer of the acquired customers to Sprint's network. The transaction closed on May 17, 2013. Of the total purchase price, approximately $605 million and $32 million was allocated to spectrum and customer relationships, respectively.
Acquisition of Remaining Interest in Clearwire
In connection with the Clearwire Acquisition, Clearwire and Sprint Communications entered into a financing agreement that provided up to $800 million of additional financing for Clearwire in the form of 1% exchangeable notes (Clearwire Exchangeable Notes), due June 2018, which were exchangeable for Clearwire common stock at a conversion price of $1.50 per share, subject to certain conditions and subject to adjustment. Under the financing agreement, Sprint Communications agreed to purchase $80 million of Clearwire Exchangeable Notes per month for up to 10 months beginning in January 2013. Clearwire elected three draws under the terms of the Clearwire Exchangeable Notes, as amended, for a total of $240 million. This financing agreement was terminated upon consummation of the Clearwire Acquisition.
On July 9, 2013 (Clearwire Acquisition Date), Sprint Communications completed the Clearwire Acquisition. Immediately prior to the completion of the Clearwire Acquisition, Sprint Communications owned 739,010,818 shares of Clearwire Common Stock representing approximately 50.1% of a non-controlling voting interest of the total issued and outstanding common stock. As a result of the Clearwire Acquisition, each share of common stock of Clearwire, par value $0.0001 per share, other than shares owned by Sprint Communications, was converted into the right to receive $5.00 per share in cash. The cash consideration paid totaled approximately $3.5 billion, net of cash acquired of $198 million. Approximately $125 million of the cash consideration has been accrued as of September 30, 2013 for dissenting shares relating to stockholders who exercised their appraisal rights.
Consideration
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) cash transferred to Clearwire stockholders, which includes $125 million of cash held in escrow for dissenting shares, (b) the estimated fair value of Clearwire shares held by Sprint Communications immediately preceding the acquisition and (c) share-based payment awards (replacement awards) exchanged for awards held by Clearwire employees. The fair value of the consideration transferred was based on the most reliable measure for each element of consideration, which was determined to be the market price of Clearwire common shares as of the Clearwire Acquisition Date for all non-cash consideration.

8
Table of Contents




SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The estimated fair value of the consideration transferred, based on the market price of Clearwire common shares, as determined using the closing price on the NASDAQ as of the Clearwire Acquisition Date, consisted of the following:
Consideration:
 
Cash to acquire the remaining equity interests of Clearwire
$
3,681

Estimated value of Sprint's previously-held equity interests(1)
3,251

Liability to holders of Clearwire equity awards for services provided in the pre-acquisition period(2)
59

Total purchase price to be allocated
$
6,991

 _________________
(1)
Equals the estimated fair value of Sprint Communications' previously-held equity interest in Clearwire valued at $4.40 per share, which represented an approximate 12% discount to Sprint Communications' acquisition price for shares not held by Sprint Communications prior to the Clearwire Acquisition Date. The difference between $4.40 and the per share merger consideration of $5.00 represents an estimate of a control premium, which would not generally be included in the valuation of Sprint Communications' non-controlling interest.
(2)
$47 million of the liability was paid in cash pursuant to the Clearwire Merger Agreement.
Acquisition-related costs (included in selling, general and administrative in the results of operations) for the Clearwire Acquisition totaled approximately $19 million, of which $2 million were recognized in the three-month period ended December 31, 2012 and $11 million and $17 million were recognized in the 10-day and 191-day periods ended July 10, 2013, respectively.
Preliminary Purchase Price Allocation
The consideration transferred has been preliminarily allocated to assets acquired and liabilities assumed based on their estimated fair values at the time of the Clearwire Acquisition. The allocation of consideration transferred was based on management's judgment after evaluating several factors, including a preliminary valuation assessment. Additional analysis, including, but not limited to, the value of intangible assets, and any associated tax impacts, could result in a change in the total amount of goodwill. The preliminary allocation represents management's current best estimate of fair value, but these amounts could change as additional information is obtained and evaluated.
Of the total acquisition-related costs, the contingent acquisition-related costs paid by, or incurred by, Sprint Communications, approximately $7 million, were recorded as an expense in the Predecessor period. The following table summarizes the preliminary purchase price allocation of consideration in the Clearwire Acquisition:
Preliminary Purchase Price Allocation (in millions):
Current assets
$
778

Property, plant and equipment
1,245

Identifiable intangibles
12,870

Goodwill
706

Other assets
25

Current liabilities
(1,063
)
Long-term debt
(4,319
)
Deferred tax liabilities
(2,400
)
Other liabilities
(851
)
Net assets acquired
$
6,991


9
Table of Contents




SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The excess of the consideration transferred over the estimated fair values of assets acquired and liabilities assumed was recorded as goodwill. Goodwill includes expected synergies from combining the businesses such as cost synergies from reduced network-related expenses through the elimination of redundant assets and enhanced spectrum positions, which are expected to provide greater network coverage. None of the goodwill resulting from the acquisition, which is allocated to the Wireless segment, is deductible for income tax purposes.
Identifiable intangible assets acquired in the Clearwire Acquisition include the following:
 
Estimated Fair
 Value
 
Weighted Average
Useful Life
 
(in millions)
 
(in years)
Indefinite-lived intangible assets:
 
 
 
Federal Communications Commission (FCC) licenses
$
11,884

 
n/a
 
 
 
 
Intangible assets subject to amortization:
 
 
 
Favorable spectrum and tower leases
986

 
21
 
$
12,870

 
 
FCC licenses consist of the 2.5 gigahertz (GHz) spectrum acquired. Favorable spectrum and tower leases resulted from the favorable difference between the terms of the Clearwire tower and spectrum leases acquired and the current market terms for those leases at the Clearwire Acquisition Date (see Note 7. Intangible Assets).
Consolidated Statement of Comprehensive Loss for the period from July 10, 2013 to September 30, 2013
The following supplemental information presents the financial results of Clearwire operations included in the Consolidated Statement of Comprehensive (Loss) Income for the period from July 10, 2013 through September 30, 2013:
 
From July 10, 2013 through
September 30, 2013
 
(in millions)
Total revenues
$
169

Net loss
$
(415
)
SoftBank Transaction
On October 15, 2012, Sprint Communications entered into the Merger Agreement with SoftBank. In addition, on October 15, 2012, Sprint Communications and SoftBank entered into the Bond Agreement. In July 2013, all conditions to closing were complete and the SoftBank Merger was consummated on July 10, 2013 (SoftBank Merger Date). As a result, Starburst II, Inc. immediately changed its name to Sprint Corporation and Sprint Nextel Corporation changed its name to Sprint Communications, Inc. Pursuant to the Bond Agreement, Sprint Communications 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 common stock at $5.25 per share at consummation of the SoftBank Merger. Sprint Communications stockholders received consideration in a combination of both cash and stock, subject to proration. As a result of the completion of the SoftBank Merger and subsequent open market stock purchases, SoftBank owns approximately 80% of the outstanding voting common stock of Sprint and other Sprint stockholders own the remaining 20%, which consisted of common shares issued pursuant to the SoftBank Merger Agreement. 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 issued to former stockholders of Sprint Communications. SoftBank provided an equity contribution of $1.9 billion to Sprint at the close of the SoftBank Merger, which was not distributed to former stockholders and is intended to be used for general corporate purposes.

10
Table of Contents




SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Consideration Transferred
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) cash transferred to Sprint Communications stockholders, (b) the number of shares of Sprint issued to Sprint Communications stockholders and (c) share-based payment awards (replacement awards) exchanged for awards held by Sprint employees. The fair value of the consideration transferred was based on the most reliable measure for each element of consideration, which was determined to be the market price of Sprint common shares as of July 11, 2013 for all non-cash consideration. The estimated fair value of the consideration transferred, based on the market price of Sprint common stock, as determined using the closing price on the New York Stock Exchange as of July 11, 2013, and the investments by SoftBank consisted of the following:
Consideration transferred and investments by SoftBank (in millions):
 
Cash consideration paid to Sprint Communications stockholders
$
16,640

Issuance of Sprint Corporation common stock to former Sprint Communications stockholders
5,344

Estimated value of Sprint Corporation equity awards issued to holders of Sprint Communications equity awards for service provided in the pre-combination period
193

Total purchase price to be allocated
22,177

Convertible Bond
3,100

Additional capital contribution made by SoftBank
1,900

Total consideration transferred and investments by SoftBank
$
27,177

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 close of the SoftBank Merger. Merger-related costs (included in selling, general and administrative in the results of operations) for the SoftBank Merger totaled approximately $129 million, of which $32 million were recognized in the three-month period ended December 31, 2012 and $73 million and $97 million were recognized in the three and nine-month periods ended September 30, 2013, respectively.
Preliminary Purchase Price Allocation
The consideration transferred has been preliminarily 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 allocation of consideration transferred was based on management's judgment after evaluating several factors, including a preliminary valuation assessment. Additional analysis, including, but not limited to, the value of property, plant and equipment and intangible assets, and any associated tax impacts, could result in a change in the total amount of goodwill. The preliminary allocation represents management's current best estimate of fair value, but these amounts could change as additional information is obtained and evaluated. In addition, because approximately $46 million of certain merger-related fees of Sprint Communications, the acquiree, were contingent upon the closing of the SoftBank Merger, these fees were not recorded as an expense subsequent to the close of the transaction. However, these fees were reflected in the preliminary purchase price allocation. Of the total acquisition-related costs, approximately $73 million of contingent merger-related costs paid by, or incurred by SoftBank on behalf of, the accounting acquirer (formerly Starburst II), were recorded as an expense in the three-month period ended September 30, 2013 Successor period.

11
Table of Contents




SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the preliminary purchase price allocation of consideration transferred:
Preliminary Purchase Price Allocation (in millions):
Current assets
$
8,518

Investments
133

Property, plant and equipment
14,558

Identifiable intangibles
50,372

Goodwill
6,819

Other assets
235

Current liabilities
(10,705
)
Long-term debt
(29,512
)
Deferred tax liabilities
(14,257
)
Other liabilities
(3,984
)
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

The excess of the consideration transferred over the estimated fair values of assets acquired and liabilities assumed was recorded as goodwill. Goodwill includes expected synergies such as cost synergies related to scaled purchasing and other additional cost savings. Goodwill resulting from the SoftBank Merger is allocated to the Wireless segment and substantially all is not expected to be deductible for income tax purposes. Gross contractual receivables acquired and included within current assets above totaled approximately $3.4 billion for which the estimated fair value is $3.2 billion. The difference is the estimated amount of the Predecessor's allowance for doubtful accounts at the SoftBank Merger Date.
Identifiable intangible assets acquired in the SoftBank Merger include the following:
 
Estimated Fair
Value
 
Weighted Average
Useful Life
 
(in millions)
Indefinite-lived intangible assets:
 
 
 
FCC licenses
$
35,469

 
n/a
Trademarks
5,935

 
n/a
Intangible assets subject to amortization:
 
 
 
Customer relationships
6,923

 
8
Other definite-lived intangible assets
 
 
 
Favorable spectrum leases
884

 
23
Favorable tower leases
589

 
6
Trademarks
520

 
34
Other
52

 
10
 
$
50,372

 
 
Indefinite-lived intangible assets consist of 1.9 GHz, 800 megahertz (MHz), 900 MHz, and 2.5 GHz FCC licenses well as the Sprint and Boost Mobile trademarks. Intangible assets subject to amortization consist of customer relationships, favorable spectrum and tower leases resulting from the favorable difference between the terms of the tower and spectrum leases acquired and the current market terms for those leases, and the Virgin Mobile trade name (see Note 7. Intangible Assets).

12
Table of Contents




SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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, 2012 for the nine-month periods ended September 30, 2013 and 2012, respectively.
 
Nine Months Ended
 
September 30,
 
2013
 
2012
 
(in millions)
Net operating revenues
$
26,810

 
$
26,749

Net loss
$
(3,188
)
 
$
(3,618
)
Basic loss per common share
$
(0.82
)
 
$
(0.94
)
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, 2012. The preparation of the pro forma financial information also assumed a preliminary 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 it's 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 (See Note 4. Investments) 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, 2012 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.
Investments
The components of investments were as follows:
 
Successor
 
 
Predecessor
 
September 30,
2013
 
December 31,
2012
 
 
December 31,
2012
 
(in millions)
Marketable equity securities
$
45

 
$
—

 
 
$
45

Equity method and other investments
92

 
—

 
 
1,008

Bond investment
—

 
2,929

 
 
—

Bond derivative
—

 
175

 
 
—

 
$
137

 
$
3,104

 
 
$
1,053

The bond investment, together with the bond derivative, for the Successor period relate to the convertible bond Sprint Communications issued (See Note 9. Long-term debt, financing and capital lease obligations) to Starburst II in connection with the Bond Agreement (See Note 3. Significant Transactions), which was accounted for as an available-for-sale investment carried at its estimated fair value by Starburst II.

13
Table of Contents




SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Consolidation of Clearwire
Sprint's Ownership Interest and Equity in Earnings/Losses
Immediately prior to the Clearwire Acquisition, Sprint Communications held approximately 50.1% of non-controlling voting interest and a 2.1% non-controlling economic interest in Clearwire Corporation as well as a 48.0% non-controlling economic interest in Clearwire Communications LLC, a wholly-owned subsidiary of Clearwire Corporation, (together, "Clearwire") for which the carrying value totaled $325 million. Prior to the consummation of the Clearwire Acquisition, we applied equity method accounting to the investment in Clearwire.
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 the Clearwire Exchangeable Notes, and other items recognized by Clearwire Corporation that did not affect our economic interest. Equity in losses from Clearwire for the three-month period ended September 30, 2012 included a $204 million pre-tax impairment reflecting a reduction in the carrying value of the investment in Clearwire to an estimated fair value. The nine-month period ended September 30, 2012 also included charges of approximately $41 million, which were associated with Clearwire's write-off of certain network and other assets that no longer met its strategic plans. Sprint's equity in losses for the year-to-date period ended July 9, 2013, includes a $65 million derivative loss associated with the change in fair value of the embedded derivative included in the Clearwire Exchangeable Notes.
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 consolidated statement of comprehensive (loss) income 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.
Summarized financial information for Clearwire for the periods preceding the Clearwire Acquisition is as follows:
 
January 1, -
 July 9,
 
July 1, -
 July 9,
 
Nine Months Ended
 
Three Months Ended
 
 
 
September 30,
 
2013
 
2013
 
2012
 
2012
 
(in millions)
Revenues
$
666

 
$
31

 
$
954

 
$
314

Operating expenses
(1,285
)
 
(62
)
 
(2,020
)
 
(647
)
Operating loss
$
(619
)
 
$
(31
)
 
$
(1,066
)
 
$
(333
)
Net loss from continuing operations before non-controlling interests
$
(909
)
 
$
(31
)
 
$
(1,312
)
 
$
(320
)
Net loss from discontinued operations before non-controlling interests
$
—

 
$
—

 
$
(179
)
 
$
(173
)
Clearwire Related-Party Transactions
Sprint's equity method investment in Clearwire included agreements by which we resold wireless data services utilizing Clearwire's 4G network. In addition, Clearwire utilized the third generation (3G) Sprint network to provide dual-mode service to its customers in those areas where access to its 4G network was not available. Cost of services and products included in our consolidated statements of comprehensive loss related to our agreement to purchase 4G services from Clearwire totaled $103 million and $312 million for the three and nine-month periods ended September 30, 2012, respectively, and $11 million and $207 million for the periods from July 1, 2013 and January 1, 2013 to the Clearwire Acquisition, respectively.


14
Table of Contents




SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 5.
Financial Instruments
Cash and cash equivalents, restricted cash, accounts and notes receivable, and accounts payable are carried at cost, which approximates fair value. Short-term investments (consisting primarily of time deposits, commercial paper, and Treasury securities), totaling approximately $1.4 billion and $1.8 billion as of September 30, 2013 (Successor) and December 31, 2012 (Predecessor), respectively, are recorded at amortized cost, and the respective carrying amounts approximate fair value using quoted prices in active markets. The fair value of marketable equity securities totaling $45 million as of September 30, 2013 (Successor) and December 31, 2012 (Predecessor), respectively, is 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 the Bond and our credit facilities, is determined based on quoted prices in active markets or by using other observable inputs that are derived principally from or corroborated by observable market data. As of March 31, 2013, the outstanding carrying value under our credit facilities, which totaled $945 million (Predecessor) and approximated fair value at the time of transfer, was transferred out of estimated fair value using observable inputs and into estimated fair value using unobservable inputs due to the lack of an available pricing source. To estimate the fair value of our Clearwire Exchangeable Notes and the related embedded derivative, as well as the Bond issued by Sprint Communications to Starburst II (see Note 3. Significant Transactions) and its related bond derivative, a convertible bond pricing model was used based on the relevant interest rates, conversion feature and other significant inputs not observable in the market. The significant unobservable inputs used in the fair value measurement of the Company's exchangeable notes and related embedded derivative as well as the Bond and its related bond derivative are the credit condition of the companies, probability and timing of conversion, and discount for lack of marketability. Significant increases or decreases in any of those inputs, in isolation, would result or could have resulted in a significantly lower or higher fair value measurement. Immediately preceding the close of the SoftBank Merger on July 10, 2013, the Bond was converted into shares of Sprint Communications. As a result, there is no balance for the Bond or its related bond derivative as of September 30, 2013.
The following table presents carrying amounts and estimated fair values of current and long-term debt, and the available-for-sale bond investment and its related bond derivative:  
 
Predecessor
 
Carrying amount at December 31, 2012
 
Estimated Fair Value Using Input Type
 
 
Quoted prices in active markets
 
Observable
 
Unobservable
 
Total estimated fair value
 
(in millions)
Current and long-term debt
$
23,569

 
$
17,506

 
$
6,118

 
$
3,104

 
$
26,728

 
Successor
 
Carrying amount at September 30, 2013
 
Estimated Fair Value Using Input Type
 
 
Quoted prices in active markets
 
Observable
 
Unobservable
 
Total estimated fair value
 
(in millions)
Current and long-term debt
$
33,001

 
$
25,900


$
5,797


$
1,215


$
32,912


Carrying amount at December 31, 2012
 
Estimated Fair Value Using Input Type
 
 
Quoted prices in active markets
 
Observable
 
Unobservable
 
Total estimated fair value
 
(in millions)
Bond investment
$
2,929

 
$
—

 
$
—

 
$
2,929

 
$
2,929

Bond derivative
$
175

 
$
—

 
$
—

 
$
175

 
$
175



15
Table of Contents




SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The following is a reconciliation of recurring unobservable assets:

Successor
 
Balances as of December 31, 2012
 
Net purchases
 
Conversion of Convertible Bond
 
Accretion of bond discount recognized as interest income
 
Change in value of derivative
 
Realization of Gain on Bond recognized in other income, net
 
Transfers In (Out) of Unobservable Inputs
 
Balances as of September 30, 2013
 
(in millions)
Bond investment
$
2,929

 
$
—

 
$
(3,100
)
 
$
12

 
$
—

 
$
159

 
$
—

 
$
—

Bond derivatives
$
175

 
$
—

 
$
—

 
$
—

 
$
(175
)
 
$
—

 
$
—

 
$
—


Note 6.
Property, Plant and Equipment
Property, plant and equipment consists primarily of network equipment and other long-lived assets used to provide service to our subscribers. In the first quarter 2012, plans were formalized to take off-air roughly one-third, or 9,600 cell sites, of the total Nextel platform by the middle of 2012. The remaining sites, approximately 20,000, were taken off-air on June 30, 2013. As a result, incremental depreciation expense was recorded through the period ended June 30, 2013. In addition, increasing data usage driven by more subscribers on the Sprint platform and a continuing shift in our subscriber base to smartphones is expected to require additional legacy 3G Sprint platform equipment that will not be utilized beyond the final deployment of Network Vision's multi-mode technology, which is expected to continue through the middle of 2014. As a result, the estimated useful lives of such equipment were shortened, as compared to similar prior capital expenditures, through the date on which Network Vision equipment is deployed and in-service. The incremental effect of accelerated depreciation expense totaled approximately $800 million for the 191-day period ended July 10, 2013, and $400 million and $1.7 billion for the three and nine-month periods ended September 30, 2012, respectively, of which the majority related to shortened useful lives of Nextel platform assets for all periods.
Property, plant, and equipment as of September 30, 2013 includes non-cash additions for the nine-month period ended of approximately $500 million along with corresponding increases in accounts payable and accrued expenses and other current liabilities.
The components of property, plant and equipment, and the related accumulated depreciation for the Predecessor and Successor periods were as follows:
 
Successor
 
 
Predecessor
 
September 30,
2013
 
 
December 31,
2012
 
(in millions)
Land
$
265

 
 
$
330

Network equipment, site costs and related software
11,764

 
 
37,692

Buildings and improvements
711

 
 
4,893

Non-network internal use software, office equipment and other
655

 
 
1,860

Construction in progress
2,802

 
 
3,123

Less: accumulated depreciation
(885
)
 
 
(34,291
)
Property, plant and equipment, net
$
15,312

 
 
$
13,607



16
Table of Contents




SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 7.
Intangible Assets
Indefinite-Lived Intangible Assets
At September 30, 2013, we hold 1.9 GHz, 800 MHz, 900 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.
 
Predecessor
 
December 31,
2012
 
Net
Additions
 
July 10,
2013
 
(in millions)
FCC licenses
$
20,268

 
$
12,580

 
$
32,848

Trademarks
409

 
—

 
409

Goodwill
359

 
715

 
1,074

 
$
21,036

 
$
13,295

 
$
34,331


 
Successor
 
July 11,
2013
 
Net
Additions
 
September 30,
2013
 
(in millions)
FCC licenses
$
35,469

 
$
55

 
35,524

Trademarks
5,935

 
—

 
5,935

Goodwill
6,819

 
—

 
6,819

 
$
48,223

 
$
55

 
48,278

During the period from January 1, 2013 through July 10, 2013 Sprint acquired approximately $605 million of 1.9 GHz spectrum and $11.9 billion of 2.5 GHz spectrum from U.S. Cellular and Clearwire, respectively (see Note 3. Significant Transactions). The net additions during this Predecessor period also included approximately $91 million of costs related to our 2004 FCC Report and Order to reconfigure the 800 MHz band (Report and Order) (see Note 12. Commitments and Contingencies).
The amounts reflected in the July 11, 2013 column represents the preliminary estimated fair value of each class of indefinite-lived intangible assets resulting from the SoftBank Merger. Trademarks, which include our Sprint and Boost Mobile tradenames, have also been identified as indefinite-lived intangible assets. The net additions for FCC licenses during the period from July 11, 2013 through September 30, 2013 were as a result of work related to our Report and Order (see Note 12. Commitments and Contingencies).
Goodwill
Goodwill represents the excess of consideration paid over the estimated fair value of net tangible and identifiable intangible assets acquired in business combinations. We recognized $6.8 billion of goodwill associated with the SoftBank Merger in the Successor period ended September 30, 2013 (see Note 3. Significant Transactions).
Goodwill Recoverability Assessment
The carrying value of Sprint's goodwill is included in the Wireless segment, which represents our wireless reporting unit. We estimate the fair value of the wireless reporting unit using both discounted cash flow and market-based valuation models. If the fair value of the wireless reporting unit exceeds its net book value, goodwill is not impaired, and no further testing is necessary. If the net book value of our wireless reporting unit exceeds its estimated fair value, we estimate the fair value of goodwill to determine the amount of impairment loss, if any. As a result of the preliminary remeasurement of assets acquired and liabilities assumed in connection with the SoftBank Merger, Sprint recognized goodwill at its estimate of fair value as of the SoftBank Merger Date. Since goodwill is reflected at its estimate of fair value, there is no cushion, or fair value in excess of carrying value as of the SoftBank

17
Table of Contents




SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Merger Date, and the risk associated with potential goodwill impairment in future reporting periods is heightened. The Company has not finalized the valuation associated with the SoftBank Merger. Any additional changes to the valuation and associated impact to our purchase price allocation could result in a change in the amount of goodwill reflected in these financial statements in future reporting periods.
The determination of the estimated fair value of the wireless reporting unit requires significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to, transactions within the wireless industry and related control premiums, discount rate, terminal growth rate, earnings before interest, taxes, depreciation and amortization (EBITDA) and capital expenditure forecasts. Due to the inherent uncertainty involved in making those estimates, actual results could differ from those estimates. We evaluate the merits of each significant assumption, both individually and in the aggregate, used to determine the fair value of the wireless reporting unit for reasonableness.
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 are recognized in cost of services. During the second quarter 2013, $32 million of customer relationships were recorded as a result of the acquisition of assets from U.S. Cellular (see Note 3. Significant Transactions). In addition, during the second quarter 2013, the gross carrying value and accumulated amortization was reduced by approximately $234 million associated with fully amortized intangible assets primarily related to customer relationships in connection with the 2009 acquisition of iPCS. During the third quarter 2013, we recorded $6.9 billion of customer relationships, $884 million of favorable spectrum leases, $589 million of favorable tower leases, $520 million for trademarks and $52 million of other intangible assets as a result of the preliminary allocation of the SoftBank Merger and Clearwire Acquisition (see Note 3. Significant Transactions).
 
 
 
Successor
 
 
Predecessor
 
 
 
September 30, 2013
 
 
December 31, 2012
 
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

 
$
(445
)
 
$
6,478

 
 
$
234

 
$
(230
)
 
$
4

Other intangible assets

 
 
 
 
 
 
 
 
 
 
 
 
 
Favorable spectrum leases
23 years
 
884

 
(10
)
 
874

 
 
—

 
—

 
—

Favorable tower leases
3 to 7 years
 
589

 
(26
)
 
563

 
 
—

 
—

 
—

Trademarks
34 years
 
520

 
(4
)
 
516

 
 
1,168

 
(681
)
 
487

Reacquired rights
9 to 14 years
 
—

 
—

 
—

 
 
1,571

 
(785
)
 
786

Other
4 to 10 years
 
54

 
(2
)
 
52

 
 
138

 
(80
)
 
58

Total other intangible assets
 
 
2,047

 
(42
)
 
2,005

 
 
2,877

 
(1,546
)
 
1,331

Total definite-lived intangible assets
 
 
$
8,970

 
$
(487
)
 
$
8,483

 
 
$
3,111

 
$
(1,776
)
 
$
1,335

 
2013
 
2014
 
2015
 
2016
 
2017
 
(in millions)
Estimated amortization expense
$
473


$
1,737


$
1,488


$
1,231


$
946


Note 8.
Accounts Payable
Accounts payable at September 30, 2013 and December 31, 2012 include liabilities in the amounts of $110 million and $117 million, respectively, for checks issued in excess of associated bank balances but not yet presented for collection.

18
Table of Contents




SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 9.
Long-Term Debt, Financing and Capital Lease Obligations
 
 
 
 
 
 
 
 
 
 
Successor
 
 
Predecessor
 
Interest Rates
 
Maturities
 
September 30,
2013
 
 
December 31,
2012
 
 
 
 
 
 
 
 
 
(in millions)
Notes
 
 
 
 
 
 
 
 
 
 
 
 
Senior notes
 
 
 
 
 
 
 
 
 
 
 
 
Sprint Corporation
7.25
-
7.88%
 
2021
-
2023
 
$
6,500

 
 
$
—

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
 
 
 
 
 
 
 
 
 
 
 
 
iPCS, Inc.
3.52%
 
2014
 
181

 
 
481

Clearwire Communications LLC
12.00
-
14.75%
 
2015
-
2017
 
3,150

 
 
—

Exchangeable notes
 
 
 
 
 
 
 
 
 
 
 
 
Clearwire Communications LLC
8.25%
 
2040
 
629

 
 
—

Convertible bonds
 
 
 
 
 
 
 
 
 
 
 
 
Sprint Communications, Inc.
1.00%
 
2019
 
—

 
 
3,100

Credit facilities
 
 
 
 
 
 
 
 
 
 
 
 
Bank credit facility
2.81%
 
2018
 
—

 
 
—

Export Development Canada
3.62%
 
2015
 
500

 
 
500

Secured equipment credit facility
2.03%
 
2017
 
715

 
 
296

Vendor financing notes
 
 
 
 
 
 
 
 
Clearwire Communications LLC
5.77
-
7.26%
 
2015
 
27

 
 
—

Financing obligation
6.09%
 
2021
 
351

 
 
698

Capital lease obligations and other
2.35
-
10.52%
 
2014
-
2023
 
199

 
 
74

Net discount from beneficial conversion feature on convertible bond
 
 
 
 
 
 
 
 
—

 
 
(247
)
Net premiums (discounts)
 
 
 
 
 
 
 
 
1,815

 
 
(45
)
 
 
 
 
 
 
 
 
 
33,551

 
 
24,341

Less current portion
 
 
 
 
 
 
 
 
(1,131
)
 
 
(379
)
Long-term debt, financing and capital lease obligations
 
 
 
 
 
 
 
 
$
32,420

 
 
$
23,962

As of September 30, 2013, Sprint Corporation, the parent corporation, had $6.5 billion in principal amount of debt outstanding. In addition, as of September 30, 2013, the outstanding principal amount of Senior notes issued by Sprint Communications, Inc. and Sprint Capital Corporation, Guaranteed notes issued by Sprint Communications, Inc., and Secured notes issued by iPCS, Inc. (iPCS), totaling $19.7 billion in principal amount of our long-term debt was issued by 100% owned subsidiaries was fully and unconditionally guaranteed by Sprint Corporation. The indentures and financing arrangements governing certain of our subsidiaries' debt contain provisions that limit cash dividend payments on subsidiary common stock. Except in the case of notes issued by and secured by assets of Clearwire Communications LLC, the transfer of cash in the form of advances from subsidiaries to the parent corporation generally is not restricted. Cash interest payments, net of amounts capitalized of $14 million and $269 million, respectively, totaled $309 million and $912 million during the nine-month periods ended September 30, 2013 and 2012, respectively. Cash interest payments, net of amounts capitalized of $1 million and $29 million, totaled $6 million and $814 million during the 10-day and 191-day periods ended July 10, 2013, respectively. In the third quarter 2013, Sprint Corporation provided a guaranty in respect of the Senior notes and

19
Table of Contents




SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Guaranteed notes of Sprint Communications, Inc., the Senior notes of Sprint Capital Corporation, and the Secured notes of iPCS, Inc.
Notes
Notes consist of Senior notes, and Guaranteed notes, all of which are unsecured, as well as Secured notes of iPCS and Clearwire Communications LLC, which are secured solely by the respective underlying assets of iPCS and Clearwire Communications LLC. Cash interest on all of the notes is generally payable semi-annually in arrears. As of September 30, 2013, approximately $29.1 billion aggregate principal amount of the notes were redeemable at the Company's discretion at the then-applicable redemption prices plus accrued interest.
As of September 30, 2013, approximately $17.6 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 September 30, 2013, approximately $3.2 billion 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. 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 consummation 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.
Debt Issuances
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 (144A) transaction with registration rights. Interest on the notes is payable semi-annually on March 15 and September 15. The notes are guaranteed by Sprint Communications, Inc.
Sprint Communications' credit facilities contain a financial covenant requiring that, as of the last day of each fiscal quarter, Sprint Communications' ratio of total indebtedness to EBITDA (as defined) not exceed a threshold level, which was 6.25 to 1.0 at September 30, 2013. After giving effect to the offering of $6.5 billion aggregate principal amount of notes by the Company in September 2013, there was risk we would exceed the Leverage Ratio at September 30, 2013. Accordingly, we obtained a limited waiver from each of the lenders under the credit facilities that allows us to exclude $4.5 billion of indebtedness from our Leverage Ratio, which enables us to be in compliance with this financial covenant until December 31, 2013. However, as a requirement under the waivers, we must maintain a segregated reserve account of $3.5 billion until the earlier of 1) the time such funds are used to prepay, redeem or otherwise retire existing Clearwire indebtedness, or 2) December 31, 2013 at which time the waivers will have expired. Sprint intends to retire certain of Clearwire’s indebtedness prior to the expiration of the waiver, which would allow the Company to remain in compliance with its Leverage Ratio beyond the expiration of the waivers.
Debt Redemptions
On May 1, 2013, the Company paid $300 million in principal amount to redeem its outstanding iPCS, Inc. Secured Floating Rate Notes due 2013.
From September 11, 2013 through September 30, 2013, approximately $414 million in principal amount of Clearwire Communications LLC's 12% Senior Secured Notes due 2015 were retired. The funds used to retire these notes directly reduced the amount required to be segregated in the reserve account as those funds were used to redeem this Clearwire Communications LLC debt. Therefore, as of September 30, 2013 our restricted cash balance was approximately $3.1 billion (See Note 15. Subsequent Events for additional subsequent redemptions).
On September 30, 2013, Sprint's wholly-owned subsidiaries, Clearwire Communications LLC and Clearwire Finance, Inc. (the Issuers) issued a notice to redeem $175 million, classified as a current debt obligation,

20
Table of Contents




SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

of the $500 million principal amount outstanding of Clearwire Communications LLC's 12% second-priority secured notes due 2017, setting a redemption date of October 30, 2013. Furthermore, on October 24, 2013, the Issuers issued notices to redeem on December 1, 2013, all of the then outstanding principal amount of their 12% senior secured notes due 2015, as well as the remaining $325 million aggregate principal amount of 12% second-priority secured notes due 2017. As of September 30, 2013, the principal amount outstanding for Clearwire Communications LLC's 12% senior secured notes due 2015 was approximately $2.4 billion.
Credit Facilities
The Company has a $3.0 billion unsecured revolving bank credit facility that expires in February 2018 with an interest rate equal to the London Interbank Offered Rate (LIBOR) plus a spread that varies depending on the Company’s credit ratings. As of September 30, 2013, approximately $915 million in letters of credit were outstanding under this credit facility, including the letter of credit required by the Report and Order. As a result of the outstanding letters of credit, which directly reduce the availability of borrowings under this facility, there was $2.1 billion of borrowing capacity available as of September 30, 2013. The unsecured Export Development Canada (EDC) credit facility and secured equipment credit facility were amended on March 12, 2013, and June 24, 2013, respectively to provide for terms similar to those of the bank revolving credit facility, except that under the terms of the EDC credit facility and the secured equipment credit facility, repayments of outstanding amounts cannot be re-drawn. As of September 30, 2013, the EDC credit facility was fully drawn.
As of September 30, 2013, we had fully drawn the first tranche of the secured equipment credit facility totaling $500 million and made two equal regularly scheduled principal repayments totaling $111 million during 2013. The second tranche of $500 million became available to draw upon through May 31, 2014, although the use of such funds is limited to equipment-related purchases from Ericsson Inc. (Ericsson). As of September 30, 2013, we had drawn approximately $326 million on the second tranche of the facility. The cost of funds under this facility includes a fixed interest rate of 2.03%, and export credit agency premiums and other fees that, in total, equate to an expected effective interest rate of approximately 6% based on assumptions such as timing and amounts of drawdowns. The facility is secured by a lien on the equipment purchased and is fully and unconditionally guaranteed by Sprint Communications, Inc.
Financing, Capital Lease and Other Obligations
We have approximately 3,000 cell sites that we sold and subsequently leased back. Terms extend through 2021, with renewal options for an additional 20 years. These cell sites continue to be reported as part of our property, plant and equipment due to our continued involvement with the property sold and the transaction is accounted for as a financing. Our capital lease and other obligations are primarily for the use of wireless network equipment.
Covenants
Certain indentures that govern our outstanding notes also require compliance with various covenants, including covenants that limit the Company's ability to sell all or substantially all of its assets, to incur indebtedness, and to incur liens, as defined by the terms of the indentures.
As of September 30, 2013, 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 our other debt obligations, which in turn could result in the maturities being accelerated.
We are currently restricted from paying cash dividends because our ratio of total indebtedness to trailing four quarters earnings before interest, taxes, depreciation and amortization and certain other non-recurring items (adjusted EBITDA), as defined in the credit facilities, exceeds 2.5 to 1.0.

Note 10.
Severance, Exit Costs and Asset Impairments
Severance and Exit Costs Activity
For the three and nine-month periods ended September 30, 2013 as well as for the 191-day period ended July 10, 2013, we recognized lease exit costs associated with the decommissioning of the Nextel Platform. For the

21
Table of Contents




SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10-day period ended July 10, 2013, we recognized a benefit in lease exit costs due to the changes in estimates for lease exit costs previously recognized.
For the three and nine-month periods ended September 30, 2013 as well as for the 10-day and 191-day periods ended July 10, 2013, we also recognized severance costs associated with reductions in force and 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.
As a result of Network Vision and the completion of the Significant Transactions (see Note 3. Significant Transactions), we expect to incur additional exit costs in the future related to the transition of our existing backhaul architecture to a replacement technology for our network and the efforts associated with the integration of our Significant Transactions, such as the evaluation of future use of the Clearwire 4G broadband network, among other initiatives. These additional exit costs are expected to range between approximately $275 million to $375 million, of which the majority are expected to be incurred through first quarter 2016.
The following provides the activity in the severance and exit costs liability included in "Accounts payable," "Accrued expenses and other current liabilities" and "Other liabilities" within the consolidated balance sheets:
 
Predecessor
 
December 31,
2012
 
Purchase Price
Adjustments
 
Net
Expense
 
 
Cash Payments
and Other
 
July 10,
2013
 
(in millions)
Lease exit costs
$
190

 
$
131

 
$
478

(1) 
 
$
(33
)
 
$
766

Severance costs
11

 
—

 
58

(2) 
 
(15
)
 
54

Access exit costs
43

 
—

 
151

(3) 
 
(5
)
 
189

 
$
244

 
$
131

 
$
687

 
 
$
(53
)
 
$
1,009

 _________________
(1) For the 10-day and 191-day periods ended July 10, 2013, we recognized a benefit of $37 million due to the changes in estimates for lease exit costs previously recognized and net costs of $478 million (solely attributable to our Wireless segment), respectively.
(2) For the 10-day and 191-day periods ended July 10, 2013, we recognized $32 million (solely attributable to our Wireless segment) and $58 million ($55 million Wireless, and $3 million was Wireline), respectively.
(3) For the 10-day period ended July 10, 2013, we did not record any access exit costs. Of the $151 million ($133 million Wireless; $18 million Wireline) recognized for the 191-day period ended July 10, 2013, $35 million was recognized as "Cost of services and products" and $116 million was recognized in "Severance, exit costs and asset impairments."

 
Successor
 
July 11,
2013

 
Net
Expense


Cash Payments
and Other

September 30,
2013
 
(in millions)
Lease exit costs
$
772

(4) 
 
$
45

(5) 

$
46


$
863

Severance costs
54


 
41

(6) 

(17
)

78

Access exit costs
189


 
24

(7) 

(52
)

161


$
1,015


 
$
110



$
(23
)

$
1,102

 _________________
(4) The July 11, 2013 opening balance takes into account purchase price adjustments as it relates to the SoftBank Merger.
(5) For the three- and nine-month periods ended September 30, 2013, we recognized costs of $45 million ($43 million Wireless, $2 million Wireline).
(6) For the three- and nine-month periods ended September 30, 2013, we recognized costs of $41 million ($33 million Wireless, $8 million Wireline).
(7) For the three- and nine-month periods ended September 30, 2013, $7 million (solely attributable to Wireline) was recognized as "Cost of services and products" and $17 million (solely attributable to Wireless) was recognized in "Severance, exit costs and assets impairments."
Asset Impairments
There were no asset impairments for the three and nine-month periods ended September 30, 2013 or for the 10-day and 191-day period ended July 10, 2013.


22
Table of Contents




SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 11.
Income Taxes
The differences that caused our effective income tax rates to vary from the 35% U.S. federal statutory rate for income taxes were as follows:
 
Successor
 
 
Predecessor
 
Nine Months Ended
 
 
191 Days Ended
 
Nine Months Ended
 
September 30,
 
 
July 10,
 
September 30,
 
2013
 
 
2013
 
2012
 
(in millions)
Income tax benefit (expense) at the federal statutory rate
$
277

 
 
$
(155
)
 
$
1,013

Effect of:
 
 
 
 
 
 
State income taxes, net of federal income tax effect
35