Edgar Filing: SPRINT Corp

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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

For the quarterly period ended June 30, 2016



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

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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 AUGUST 4, 2016:



Sprint Corporation Common Stock	3,978,362,186

Table of Contents

SPRINT CORPORATION

TABLE OF CONTENTS



		Page Reference
Item	PART I — FINANCIAL INFORMATION
1.	Financial Statements	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Comprehensive Loss	2
	Consolidated Statements of Cash Flows	3
	Consolidated Statement of Stockholders' Equity	4
	Notes to the Consolidated Financial Statements	5
2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
3.	Quantitative and Qualitative Disclosures About Market Risk	53
4.	Controls and Procedures	53


	PART II — OTHER INFORMATION
1.	Legal Proceedings	55
1A.	Risk Factors	55
2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
3.	Defaults Upon Senior Securities	55
4.	Mine Safety Disclosures	55
5.	Other Information	56
6.	Exhibits	56
Signature		57
Exhibit Index		58

Table of Contents

PART I — FINANCIAL INFORMATION


Item 1.	Financial Statements (Unaudited)

SPRINT CORPORATION

CONSOLIDATED BALANCE SHEETS



	June 30,			March 31,
	2016			2016
	(in millions, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	3,780		$	2,641
Short-term investments	1,304			—
Accounts and notes receivable, net of allowance for doubtful accounts and deferred interest of $44 and $39, respectively	1,113			1,099
Device and accessory inventory	816			1,173
Prepaid expenses and other current assets	1,949			1,920
Total current assets	8,962			6,833
Property, plant and equipment, net	19,715			20,297
Intangible assets
Goodwill	6,575			6,575
FCC licenses and other	40,175			40,073
Definite-lived intangible assets, net	4,157			4,469
Other assets	811			728
Total assets	$	80,395		$	78,975
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,841		$	2,899
Accrued expenses and other current liabilities	4,245			4,374
Current portion of long-term debt, financing and capital lease obligations	5,603			4,690
Total current liabilities	11,689			11,963
Long-term debt, financing and capital lease obligations	31,354			29,268
Deferred tax liabilities	14,006			13,959
Other liabilities	3,844			4,002
Total liabilities	60,893			59,192
Commitments and contingencies
Stockholders' equity:
Common stock, voting, par value $0.01 per share, 9.0 billion authorized, 3.975 billion issued	40			40
Paid-in capital	27,582			27,563
Treasury shares, at cost	—			(3		)
Accumulated deficit	(7,680		)	(7,378		)
Accumulated other comprehensive loss	(440		)	(439		)
Total stockholders' equity	19,502			19,783
Total liabilities and stockholders' equity	$	80,395		$	78,975

See Notes to the Consolidated Financial Statements

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SPRINT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS



	Three Months Ended
	June 30,
	2016			2015
	(in millions, except per share amounts)
Net operating revenues:
Service	$	6,516		$	7,037
Equipment	1,496			990
	8,012			8,027
Net operating expenses:
Cost of services (exclusive of depreciation and amortization included below)	2,099			2,393
Cost of products (exclusive of depreciation and amortization included below)	1,419			1,365
Selling, general and administrative	1,917			2,187
Severance and exit costs	16			13
Depreciation	1,680			1,241
Amortization	287			347
Other, net	233			(20		)
	7,651			7,526
Operating income	361			501
Other (expense) income:
Interest expense	(615		)	(542		)
Other income, net	8			4
	(607		)	(538		)
Loss before income taxes	(246		)	(37		)
Income tax (expense) benefit	(56		)	17
Net loss	$	(302	)	$	(20	)

Basic net loss per common share	$	(0.08	)	$	(0.01	)
Diluted net loss per common share	$	(0.08	)	$	(0.01	)
Basic weighted average common shares outstanding	3,975			3,967
Diluted weighted average common shares outstanding	3,975			3,967

Other comprehensive (loss) income, net of tax:
Net unrealized holding (losses) gains on securities and other	$	(2	)	$	2
Net unrecognized net periodic pension and other postretirement benefits	1			2
Other comprehensive (loss) income	(1		)	4
Comprehensive loss	$	(303	)	$	(16	)

See Notes to the Consolidated Financial Statements

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SPRINT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS



	Three Months Ended
	June 30,
	2016			2015
	(in millions)
Cash flows from operating activities:
Net loss	$	(302	)	$	(20	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	1,967			1,588
Provision for losses on accounts receivable	93			163
Share-based and long-term incentive compensation expense	15			18
Deferred income tax expense (benefit)	46			(13		)
Amortization of long-term debt premiums, net	(80		)	(78		)
Loss on disposal of property, plant and equipment	120			—
Contract terminations	96			—
Other changes in assets and liabilities:
Accounts and notes receivable	(106		)	(1,683		)
Deferred purchase price from sale of receivables	(117		)	1,184
Inventories and other current assets	(98		)	(315		)
Accounts payable and other current liabilities	(1,016		)	(867		)
Non-current assets and liabilities, net	(159		)	83
Other, net	83			68
Net cash provided by operating activities	542			128
Cash flows from investing activities:
Capital expenditures - network and other	(473		)	(1,802		)
Capital expenditures - leased devices	(405		)	(544		)
Expenditures relating to FCC licenses	(15		)	(26		)
Proceeds from sales and maturities of short-term investments	—			138
Purchases of short-term investments	(1,304		)	(175		)
Proceeds from sales of assets and FCC licenses	27			1
Other, net	(25		)	(3		)
Net cash used in investing activities	(2,195		)	(2,411		)
Cash flows from financing activities:
Proceeds from debt and financings	3,255			346
Repayments of debt, financing and capital lease obligations	(294		)	(26		)
Debt financing costs	(175		)	(1		)
Other, net	6			14
Net cash provided by financing activities	2,792			333
Net increase (decrease) in cash and cash equivalents	1,139			(1,950		)
Cash and cash equivalents, beginning of period	2,641			4,010
Cash and cash equivalents, end of period	$	3,780		$	2,060

See Notes to the Consolidated Financial Statements

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SPRINT CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(in millions)



	Common Stock			Paid-in Capital		Treasury Shares					Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
	Shares	Amount		Paid-in Capital		Shares		Amount			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
Balance, March 31, 2016	3,974	$	40	$	27,563	1		$	(3	)	$	(7,378	)	$	(439	)	$	19,783
Net loss											(302		)				(302		)
Other comprehensive loss, net of tax														(1		)	(1		)
Issuance of common stock, net	1			—		(1	)	3									3
Share-based compensation expense				15													15
Other, net				4													4
Balance, June 30, 2016	3,975	$	40	$	27,582	—		$	—		$	(7,680	)	$	(440	)	$	19,502

See Notes to the Consolidated Financial Statements

Table of Contents

SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

INDEX



		Page Reference
1.	Basis of Presentation	6

2.	New Accounting Pronouncements	6

3.	Funding Sources	7

4.	Financial Instruments	11

5.	Property, Plant and Equipment	11

6.	Intangible Assets	12

7.	Accounts Payable	14

8.	Long-Term Debt, Financing and Capital Lease Obligations	14

9.	Severance and Exit Costs	17

10.	Income Taxes	18

11.	Commitments and Contingencies	19

12.	Per Share Data	21

13.	Segments	21

14.	Related-Party Transactions	23

15.	Guarantor Financial Information	25

Table of Contents

Index for Notes to the Consolidated Financial Statements

SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 1.	Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial information. All normal recurring adjustments considered necessary for a fair presentation have been included. Certain disclosures normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) have been omitted. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes contained in our annual report on Form 10-K for the year ended March 31, 2016. Unless the context otherwise requires, references to "Sprint," "we," "us," "our" and the "Company" mean Sprint Corporation and its consolidated subsidiaries for all periods presented, and references to "Sprint Communications" are to Sprint Communications, Inc. and its consolidated subsidiaries.

The preparation of the unaudited interim consolidated financial statements requires management of the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities at the date of the unaudited interim consolidated financial statements. These estimates are inherently subject to judgment and actual results could differ.

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


Note 2.	New Accounting Pronouncements

In 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 have 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. Most recently, they have provided further guidance on the identification of performance obligations and licensing transactions. 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 January 2015, the FASB issued authoritative guidance on Extraordinary and Unusual Items, eliminating the concept of extraordinary items. The issuance is part of the FASB’s initiative to reduce complexity in accounting standards. Under the current guidance, an entity is required to separately classify, present and disclose events and transactions that meet the criteria for extraordinary classification. Under the new guidance, reporting entities will no longer be required to consider whether an underlying event or transaction is extraordinary, however, presentation and disclosure guidance for items that are unusual in nature or occur infrequently was retained and expanded to include items that are both unusual in nature and infrequently occurring. The amendments are effective for the Company’s fiscal year beginning April 1, 2016, and did not 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 is effective for the Company’s fiscal year beginning

Table of Contents

Index for Notes to the Consolidated Financial Statements

SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

April 1, 2016, including interim reporting periods within this fiscal year and did not 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 this 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 effective for the Company's fiscal year beginning April 1, 2016, including interim periods within this fiscal year and, will be applied, as necessary, to future business combinations. The amendments are to be applied prospectively to adjustments that occur after the effective date.

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 expects it to have a material impact on our consolidated financial statements, however we are still assessing the overall impact.

In June 2016, the FASB issued authoritative guidance regarding Financial Instruments - Credit Losses, which requires entities to use a Current Expected Credit Loss impairment model based on expected losses rather than incurred losses. Under this model, an entity would recognize an impairment allowance equal to its current estimate of all contractual cash flows that the entity does not expect to collect from financial assets measured at amortized cost. The entity's estimate would consider relevant information about past events, current conditions and reasonable and supportable forecasts, which will result in recognition of lifetime expected credit losses. The standard will be effective for the Company's fiscal year beginning April 1, 2020, including interim reporting periods within that fiscal year, although early adoption is permitted. The Company is currently evaluating the guidance and assessing the impact it will have on our consolidated financial statements.


Note 3.	Funding Sources

Our device leasing and installment billing programs require a greater use of operating cash flows in the earlier part of the device contracts as our subscribers will generally pay less upfront than traditional subsidized programs. The Accounts Receivable Facility and the Handset Sale-Leaseback Tranche 1 and 2 transactions described below 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. As described below, in April 2016, Sprint entered into a second transaction with Mobile Leasing Solutions, LLC (MLS) that provided $1.1 billion in cash proceeds in May 2016 to further mitigate the use of cash from

Table of Contents

Index for Notes to the Consolidated Financial Statements

SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

purchasing devices from OEMs. We also entered into a Network Equipment Sale-Leaseback transaction to sell and leaseback certain network equipment to unrelated bankruptcy-remote special purposes entities (SPEs) that provided $2.2 billion in cash proceeds. In addition, we have $3.0 billion of availability under our revolving bank credit facility and, in April 2016, Sprint Communications entered into a new unsecured financing facility providing for $2.0 billion of additional liquidity, which was subsequently increased to $2.5 billion in June 2016 (see Note 8. Long-Term Debt, Financing and Capital Lease Obligations).

Accounts Receivable Facility

Transaction Overview

Our accounts receivable facility (Receivables Facility), which provides us the opportunity to sell certain wireless service and installment receivables to unaffiliated third parties (the Purchasers), was amended in November 2015 to include future amounts due from customers who lease certain devices from us. The amendment also increased the maximum funding limit under the Receivables Facility to $4.3 billion and extended the expiration to November 2017. While it's at Sprint's election to decide how much cash it chooses to receive from each sale, the maximum amount of cash available to us varies based on a number of factors and currently represents approximately 50% of the total amount of the eligible receivables sold to the Purchasers. As of June 30, 2016, the total amount available to be drawn was $36 million. The proceeds from the sale of these receivables are comprised of a combination of cash and a deferred purchase price receivable (DPP). The DPP is realized by us upon the ultimate collection of the underlying receivables sold to the Purchasers or until 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" in the consolidated statements of comprehensive loss. The sale of future lease receivables are treated as financing transactions. Accordingly, the proceeds received will be reflected as cash provided by financing activities on the consolidated statements of cash flows and the fees will be recognized as "Interest expense" in the consolidated statements of comprehensive loss.

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, installment and future lease 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, which amounted to approximately $1.3 billion as of June 30, 2016, is classified as a trading security within "Prepaid expenses and other current assets" in the consolidated balance sheets and is recorded at its estimated fair value. The fair value of the DPP is estimated using a discounted cash flow model, which relies principally on unobservable inputs such as the nature and credit class of the sold receivables and subscriber payment history, and, for installment receivables sold, the estimated timing of upgrades and upgrade payment amounts for those with upgrade options. Accretable yield on the DPP is recognized as interest revenue within net operating service revenue on the consolidated statements of comprehensive loss and other changes in the fair value

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Index for Notes to the Consolidated Financial Statements

SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

of the DPP are recognized in "Selling, general and administrative" in the consolidated statements of comprehensive loss. Changes in the fair value of the DPP did not have a material impact on our statements of comprehensive loss for the three-month period ended June 30, 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.

During the quarter ended June 30, 2016, we remitted $185 million of funds to the Purchasers because the amount of cash proceeds received by us under the facility exceeded the maximum funding limit which increased the total amount of the DPP due to Sprint. We also elected to receive $40 million of cash which decreased the total amount of the DPP due to Sprint. In addition, during the quarter ended June 30, 2016, cash collections on previously sold receivables exceeded sales of new receivables such that the DPP decreased by $28 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 June 30, 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 variable because it consists of assets that represent less than 50% of the total activity of the Conduits.

Handset Sale-Leasebacks

In December 2015 and May 2016, we sold certain iPhone^® devices being leased by our customers to MLS, a company formed by a group of equity investors, including SoftBank Group Corp. (SoftBank), and then subsequently leased the devices back. Under the agreements, Sprint maintains the customer leases, continues to collect and record lease revenue from the customer and remits monthly rental payments to MLS during the leaseback periods.

Under the agreements, Sprint contributed the 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 a combination of cash and DPP. Settlement for the DPP occurs near 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 an amount less than the expected residual value of the device), but only to the extent of the device's DPP balance. In the event that MLS sells the devices returned from our customers at a price greater than the expected device residual value, Sprint has the potential to share some of the excess proceeds.

The SPE Lessees retain all rights to the underlying customer leases, such as the right to receive the rental payments during the device leaseback 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. The SPE Lessees are obligated to pay the full monthly rental payments under each device lease to MLS regardless of whether our customers make lease payments on the devices leased to them or whether the customer lease is canceled. Sprint has guaranteed to MLS the performance of the agreements and undertakings of the SPE Lessees under the transaction documents.

Handset Sale-Leaseback Tranche 1 (Tranche 1)

In December 2015, Sprint transferred devices with a net book value of approximately $1.3 billion to MLS in exchange for cash proceeds totaling $1.1 billion and a DPP of $126 million. We recorded the sale, removed the devices from our balance sheet, and classified the leaseback as an operating lease. 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

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Index for Notes to the Consolidated Financial Statements

SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

and is included in "Other, net" in the consolidated statements of comprehensive loss for the three-months ended December 31, 2015. The cash proceeds received in the transaction are reflected as cash provided by investing activities on the consolidated statements of cash flows and payments made to MLS under the leaseback are reflected as "Cost of products" in the consolidated statements of comprehensive loss. Rent expense related to MLS totaled $197 million during the three-month period ended June 30, 2016 and is reflected within cash flows from operations. The monthly rental payments for the devices leased backed by us are expected to approximate the amount of cash received from the associated customer leases during the weighted average 17 month leaseback period.

Handset Sale-Leaseback Tranche 2 (Tranche 2)

In May 2016, Sprint transferred devices with a net book value of approximately $1.3 billion to MLS in exchange for cash proceeds totaling $1.1 billion and a DPP of $186 million. Unlike Tranche 1, Tranche 2 was accounted for as a financing. Accordingly, the devices remain in "Property, plant and equipment, net" in the consolidated balance sheets and we continue to depreciate the assets to their estimated residual values over the respective customer lease terms. The proceeds received are reflected as cash provided by financing activities in the consolidated statements of cash flows and payments made to MLS will be reflected as principal repayments and interest expense over the respective terms. We have elected to account for the financing obligation at fair value. Accordingly, future changes in the fair value of the financing obligation will be recognized in "Other, net" in the consolidated statements of comprehensive loss over the course of the arrangement.

Tranche 2 primarily includes devices from our iPhone Forever Program, whereas these devices were specifically excluded from Tranche 1. The iPhone Forever Program provides our leasing customers the ability to upgrade their devices and to enter into a new lease agreement, subject to certain conditions, upon Apple's release of a next generation device. Upon a customer exercising their iPhone Forever upgrade right, Sprint has the option to terminate the existing leaseback by immediately remitting all unpaid device leaseback payments and returning the device to MLS. Alternatively, Sprint is required to transfer the title in the new devices to MLS in exchange for the title in the original devices (Exchange Option). If Sprint elects the Exchange Option, we are required to continue to pay existing device leaseback rental related to the original device, among other requirements.

To address the introduction of the upgrade feature into the sale-leaseback structure, among other factors, numerous contractual terms from Tranche 1 were modified, which shifted certain risks of ownership in the devices away from MLS to Sprint and resulted in Tranche 2 being accounted for as a financing. For instance, the device leaseback periods are generally longer in Tranche 2 as compared to Tranche 1, and the resulting amounts committed to be paid by the Company represent the initial proceeds received from MLS plus interest. This mitigates MLS's exposure to certain risks for non-returned and damaged devices, as well as to declines in device residual values.

Network Equipment Sale-Leaseback

In April 2016, Sprint sold and leased back certain network equipment to unrelated bankruptcy-remote special purpose entities (collectively, "Network LeaseCo"). The network equipment acquired by Network LeaseCo was used by them as collateral to raise approximately $2.2 billion in borrowings from external investors, including SoftBank. Sprint's payments to Network LeaseCo during the leaseback period will be used by them to service their debt.

Network LeaseCo is a variable interest entity for which Sprint is the primary beneficiary. As a result, Sprint is required to consolidate Network LeaseCo and our consolidated financial statements include Network LeaseCo's debt and the related financing cash inflows. The network assets included in the transaction, which had a net book value of approximately $3.0 billion and consisted primarily of equipment located at cell towers, will remain on Sprint's consolidated financial statements and will continue to be depreciated over their respective estimated useful lives. The proceeds received are reflected as cash provided by financing activities in the consolidated statements of cash flows and payments made to Network LeaseCo will be reflected as principal repayments and interest expense over the respective terms. Sprint has the option to purchase the equipment at the end of the leaseback term for a nominal amount. All intercompany transactions between Network LeaseCo and Sprint are eliminated in our consolidated financial statements. Principal and interest payments on the borrowings from the external investors will be repaid in staggered, unequal payments through January 2018 with the first principal payment of approximately $300 million to be paid in March 2017.

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Index for Notes to the Consolidated Financial Statements

SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 4.	Financial Instruments

The Company carries certain assets and liabilities at fair value. Fair value is defined as an exit price, representing the amount 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. The three tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs based on the observability as of the measurement date, is as follows: quoted prices in active markets for identical assets or liabilities; observable inputs other than the quoted prices in active markets for identical assets and liabilities; and unobservable inputs for which there is little or no market data, which require the Company to develop assumptions of what market participants would use in pricing the asset or liability.

The carrying amount of cash and cash equivalents, accounts and notes receivable, and accounts payable approximates fair value. Short-term investments (consisting primarily of time deposits and commercial paper) are recorded at amortized cost, and the respective carrying amounts approximate fair value. Short-term investments totaled approximately $1.3 billion as of June 30, 2016 and Sprint did not hold any short-term investments as of March 31, 2016. The fair value of marketable equity securities totaling $42 million and $46 million as of June 30, 2016 and March 31, 2016, respectively, are measured on a recurring basis using quoted prices in active markets.

Except for our financing transaction with MLS, current and long-term debt and our other financings are carried at amortized cost. The Company elected to measure the financing obligation with MLS at fair value as a means to better reflect the economic substance of the arrangement. The Tranche 2 financing obligation, which amounted to approximately $889 million at June 30, 2016, is the only eligible financial instrument for which we have elected the fair value option.

The fair value of the financing obligation, which was determined at the outset of the arrangement using a discounted cash flow model, was derived by unobservable inputs such as customer churn rates, customer upgrade probabilities, and the likelihood that Sprint will elect the Exchange Option versus the termination option upon a customer upgrade. Any gains or losses resulting from changes in the fair value of the financing obligation are included in “Other, net” on the consolidated statements of comprehensive loss. During the three-month period ended June 30, 2016, the rental payments made to MLS under the leaseback totaled approximately $165 million. The change in the fair value of the financial obligation during the quarter was immaterial.

The estimated fair value of the majority of our current and long-term debt, excluding our credit facilities, future lease receivables and borrowings under our Network Equipment Sale-Leaseback and Tranche 2 transactions, 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 June 30, 2016		Estimated Fair Value Using Input Type
	Carrying amount at June 30, 2016		Quoted prices in active markets		Observable		Unobservable		Total estimated fair value
	(in millions)
Current and long-term debt	$	36,266	$	23,226	$	4,558	$	5,351	$	33,135



	Carrying amount at March 31, 2016		Estimated Fair Value Using Input Type
	Carrying amount at March 31, 2016		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


Note 5.	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 $309 million and $1.2 billion as of June 30, 2016 and 2015, respectively.

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Index for Notes to the Consolidated Financial Statements

SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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



	June 30, 2016			March 31, 2016
	(in millions)
Land	$	260		$	260
Network equipment, site costs and related software	21,493			21,500
Buildings and improvements	794			798
Non-network internal use software, office equipment, leased devices and other	6,858			6,182
Construction in progress	1,220			1,249
Less: accumulated depreciation	(10,910		)	(9,692		)
Property, plant and equipment, net	$	19,715		$	20,297

In September 2014, Sprint introduced a leasing program, whereby qualified subscribers can lease a device for a contractual period of time. At the end of the lease term, the subscriber has the option to turn in their device, continue leasing their device, or purchase the device. As of June 30, 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:



	June 30, 2016			March 31, 2016
	(in millions)
Leased devices	$	5,576		$	4,913
Less: accumulated depreciation	(1,810		)	(1,267		)
Leased devices, net	$	3,766		$	3,646

During the three-month periods ended June 30, 2016 and 2015, there were non-cash transfers to leased devices of approximately $541 million and $808 million, respectively, along with a corresponding decrease in "Device and accessory inventory." Non-cash accruals included in leased devices totaled approximately $142 million and $207 million as of June 30, 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 three-month periods ended June 30, 2016 and 2015 was $644 million and $276 million, respectively.

During the three-month period ended June 30, 2016, we recorded $120 million of loss on disposal of property, plant and equipment, which is included in "Other, net" in our consolidated statements of comprehensive loss. These losses resulted from the write-off of leased devices associated with lease cancellations prior to the scheduled customer lease terms where customers did not return the devices to us. If customers continue to not return devices, we may continue to have similar losses in future periods.


Note 6.	Intangible Assets

Indefinite-Lived Intangible Assets

Our indefinite-lived intangible assets consist of FCC licenses, which were acquired primarily through FCC auctions and business combinations, certain of our trademarks, and goodwill. At June 30, 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.

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Index for Notes to the Consolidated Financial Statements

SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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



	March 31, 2016		Net Additions		June 30, 2016
	(in millions)
FCC licenses ⁽¹⁾	$	36,038	$	102	$	36,140
Trademarks	4,035		—		4,035
Goodwill	6,575		—		6,575
	$	46,648	$	102	$	46,750

_________________


(1)	FCC licenses includes net additions of $85 million of spectrum acquired from the Shentel transaction (see Note 8. Long-Term Debt, Financing and Capital Lease Obligations).

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 an impairment during the quarter ended June 30, 2016.

The stock price at June 30, 2016 of $4.53 was below the net book value per share of $4.91. Subsequent to the balance sheet date, the stock price has increased to $6.17 at August 5, 2016. The quoted market price of our stock is not the sole consideration of fair value. Other considerations include, but are not limited to, expectations of future results and an estimated control premium.

The determination of fair value requires considerable judgment and is highly sensitive to changes in underlying assumptions. Consequently, there can be no assurance that the estimates and assumptions made for the purposes of the goodwill, spectrum and trade 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 comprehensive loss.



		June 30, 2016							March 31, 2016
	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	$	(4,320	)	$	2,603	$	6,923	$	(4,045	)	$	2,878
Other intangible assets:
Favorable spectrum leases	23 years	880		(119		)	761		881		(110		)	771
Favorable tower leases	3 to 7 years	589		(325		)	264		589		(302		)	287
Trademarks	34 years	520		(47		)	473		520		(43		)	477
Other	4 to 10 years	85		(29		)	56		83		(27		)	56
Total other intangible assets		2,074		(520		)	1,554		2,073		(482		)	1,591
Total definite-lived intangible assets		$	8,997	$	(4,840	)	$	4,157	$	8,996	$	(4,527	)	$	4,469

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Index for Notes to the Consolidated Financial Statements

SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Note 7.	Accounts Payable

Accounts payable at June 30, 2016 and March 31, 2016 include liabilities in the amounts of $60 million and $66 million, respectively, for checks issued in excess of associated bank balances but not yet presented for collection.


Note 8.	Long-Term Debt, Financing and Capital Lease Obligations



	Interest Rates			Maturities			June 30, 2016			March 31, 2016
							(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
Unsecured financing facility	4.69%			2017			—			—
Bank credit facility	3.69%			2018			—			—
Export Development Canada (EDC)	4.16	-	5.91%	2017	-	2019	550			550
Secured equipment credit facilities	2.03	-	2.88%	2017	-	2021	773			805
Financing obligations, capital lease and other obligations	2.04	-	10.63%	2016	-	2023	4,325			1,093
Net premiums and debt financing costs							396			597
							36,957			33,958
Less current portion							(5,603		)	(4,690		)
Long-term debt, financing and capital lease obligations							$	31,354		$	29,268

_________________


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

As of June 30, 2016, Sprint Corporation, the parent corporation, had $10.5 billion in aggregate principal amount of senior notes outstanding. In addition, as of June 30, 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, the installment payment obligations, and the Network Equipment Sale-Leaseback and Handset Sale-Leaseback Tranche 2 financing obligations, collectively totaled $24.6 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.

Cash interest payments, net of amounts capitalized of $10 million and $15 million, totaled $626 million and $613 million during the three-month periods ended June 30, 2016 and 2015, respectively.

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Index for Notes to the Consolidated Financial Statements

SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Notes

As of June 30, 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 June 30, 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 June 30, 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 June 30, 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 acquisition of Clearwire Corporation (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 classified as a current debt obligation. The remaining carrying value of these notes is classified as a long-term debt obligation.

Credit Facilities

Unsecured Financing Facility

During the three-month period ended June 30, 2016, Sprint Communications entered into a new unsecured financing facility for $2.5 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. Loans borrowed under the facility bear interest at a rate equal to the London Interbank Offered Rate (LIBOR) plus a percentage that varies depending on the timing of the draws, and matures in October 2017. Loans borrowed under the facility will be required to be repaid and commitments under the facility will be reduced by an amount equal to the proceeds from certain debt issuances or sales of equity securities or the sales of certain assets. As of June 30, 2016, no amounts had been drawn on this facility.

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 LIBOR plus a spread that varies depending on the Company’s credit ratings. As of June 30, 2016, approximately $326 million in letters of credit were outstanding under this credit facility, including the letter of credit required by the Report and Order (see Note 11. 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 June 30, 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. As of June 30, 2016, the total principal amount of our borrowings under the EDC facility was $550 million.

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Index for Notes to the Consolidated Financial Statements

SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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. The balance outstanding at June 30, 2016 was $254 million.

Finnvera plc (Finnvera)

The Finnvera secured equipment credit facility provides us with the ability to borrow up to $800 million to finance network-related purchases from Nokia 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. The balance outstanding at June 30, 2016 was $196 million.

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 three-month period ended June 30, 2016, we made principal repayments totaling $32 million on the facility, resulting in a total principal amount of $291 million outstanding at June 30, 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. The balance outstanding at June 30, 2016 was $32 million.

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 Obligations

Financing of Future Lease Receivables

In the three-month period ended March 31, 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 Receivable Facility (see Note 3. Funding Sources). The difference between the amount sold and the cash received represents additional collateral to the lenders. 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" in our consolidated balance sheets and continue to be depreciated over their estimated useful life.

During the three-month period ended June 30, 2016, we repaid $75 million to the Purchasers and reduced the amount owed. As of June 30, 2016, the balance outstanding was $525 million.

Network Equipment Sale-Leaseback

In April 2016, Sprint sold and leased back certain network equipment to Network LeaseCo. The network equipment acquired by Network LeaseCo, which is consolidated by us, was used by them as collateral to raise approximately $2.2 billion in borrowings from external investors, including SoftBank. Principal and interest payments on the borrowings from the external investors will be repaid in staggered, unequal payments through January 2018 with the first principal payment of approximately $300 million to be paid in March 2017 (see Note 3. Funding Sources).

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Index for Notes to the Consolidated Financial Statements

SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Handset Sale-Leaseback Tranche 2

In April 2016, Sprint entered into a second transaction with MLS to sell and leaseback certain iPhone^®devices leased by our customers. Upon the transfer of devices with a net book value of approximately $1.3 billion to MLS, Sprint received cash proceeds of $1.1 billion. Unlike Tranche 1, the proceeds from Tranche 2 were accounted for as a financing (see Note 3. Funding Sources). During the three-month period ended June 30, 2016, we repaid $165 million to MLS, which reduced the amount of the financing obligation to approximately $889 million as of the end of the quarter.

Tower Financing

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" in our consolidated balance sheets due to our continued involvement with the property sold and the transaction is accounted for as a financing.

Capital Lease and Other Obligations

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 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 also expanded the area in which Shentel provides wireless service to Sprint customers and provided for more favorable economic terms. In April 2016, we received regulatory approval and the transaction closed in May 2016. The total consideration for this transaction included approximately $181 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. FCC licenses acquired from Shentel had a total value of approximately $85 million. Approximately $96 million of the total purchase was recorded in “Other, net” in the consolidated statements of comprehensive loss as a contract termination in the quarter ended June 30, 2016, which related to the termination of our pre-existing wholesale arrangement with nTelos. The remainder of our capital lease and other obligations are primarily for the use of wireless network equipment.

Covenants

Certain indentures and other agreements require compliance with various covenants, including covenants that limit the ability of the Company and its subsidiaries to sell all or substantially all of its assets, limit the ability of the Company and its subsidiaries to incur indebtedness and liens, and require that we maintain certain financial ratios, each as defined by the terms of the indentures, supplemental indentures and financing arrangements.

As of June 30, 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.


Note 9.	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.

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Index for Notes to the Consolidated Financial Statements

SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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, 2016		Net Expense			Cash Payments and Other			June 30, 2016
	(in millions)
Lease exit costs	$	338	$	10	⁽¹⁾	$	(38	)	$	310
Severance costs	150		4		⁽²⁾	(60		)	94
Access exit costs	37		4		⁽³⁾	(9		)	32
	$	525	$	18		$	(107	)	$	436

_________________


(1)	For the three-month period ended June 30, 2016, we recognized costs of $10 million (Wireless only).


(2)	For the three-month period ended June 30, 2016, we recognized costs of $4 million (Wireless only).


(3)	For the three-month period ended June 30, 2016, $2 million (solely attributable to Wireline) was recognized as "Cost of services" and $2 million (solely attributable to Wireless) was recognized as "Severance and exit costs."

We continually refine our network strategy and evaluate other potential network initiatives to improve the overall performance of our network. Additionally, a major cost reduction initiative is underway, 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.


Note 10.	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:



	Three Months Ended June 30,
	2016			2015
	(in millions)
Income tax benefit at the federal statutory rate	$	86		$	13
Effect of:
State income taxes, net of federal income tax effect	3			(1		)
State law changes, net of federal income tax effect	—			21
Change in federal and state valuation allowance	(142		)	(22		)
Other, net	(3		)	6
Income tax (expense) benefit	$	(56	)	$	17
Effective income tax rate	(22.8		)%	45.9		%

The realization of deferred tax assets, including net operating loss carryforwards, is dependent on the generation of future taxable income sufficient to realize the tax deductions, carryforwards and credits. However, our history of annual losses reduces our ability to rely on expectations of future income in evaluating the ability to realize our deferred tax assets. Valuation allowances on deferred tax assets are recognized if it is determined that it is more likely than not that the asset will not be realized. As a result, the Company recognized income tax expense to increase the valuation allowance by $142 million and $22 million during the three-month periods ended June 30, 2016 and June 30, 2015, respectively, on deferred tax assets primarily related to losses incurred during the period that were not currently realizable and expenses recorded during the period that were not currently deductible for income tax purposes. 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.

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Index for Notes to the Consolidated Financial Statements

SPRINT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Income tax expense of $56 million for the three-month period ended June 30, 2016 was primarily attributable to taxable temporary differences from the tax 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. These temporary differences result in net deferred income tax expense since they cannot be scheduled to reverse during the loss carryforward period. Income tax benefit of $17 million for the three-month period ended June 30, 2015 was primarily attributable to tax benefits recorded as a result of changes in state income tax laws.

As of June 30, 2016 and March 31, 2016, we maintained unrecognized tax benefits of $167 million and $166 million, respectively. Cash paid for income taxes, net, was $21 million and $26 million for the three-month periods ended June 30, 2016 and 2015, respectively.

In March 2016, the FASB issued authoritative guidance on Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting which, in part, eliminates the additional paid-in capital pools and requires excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled. The company has elected to early adopt this guidance effective April 1, 2016. The early adoption of this guidance did not have a material effect on our consolidated financial statements.


Note 11.	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 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. We are waiting for final approval by the court.

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 was denied. 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

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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, and discovery is substantially complete. All parties' summary judgment motions were denied. 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.

Various other suits, inquiries, proceedings and claims, either asserted or unasserted, including purported class actions typical for a large business enterprise and intellectual property matters, are possible or pending against us or our subsidiaries. If our interpretation of certain laws or regulations, including those related to various federal or state matters such as sales, use or property taxes, or other charges were found to be mistaken, it could result in payments by us. While it is not possible to determine the ultimate disposition of each of these proceedings and whether they will be resolved consistent with our beliefs, we expect that the outcome of such proceedings, individually or in the aggregate, will not have a material adverse effect on our financial position or results of operations.

Spectrum Reconfiguration Obligations

In 2004, the FCC adopted a Report and Order that included new rules regarding interference in the 800 MHz band and a comprehensive plan to reconfigure the 800 MHz band. The Report and Order provides for the exchange of a portion of our 800 MHz FCC spectrum licenses, and requires us to fund the cost incurred by public safety systems and other incumbent licensees to reconfigure the 800 MHz spectrum band. Also, in exchange, we received licenses for 10 MHz of nationwide spectrum in the 1.9 GHz band.

The minimum cash obligation is $2.8 billion under the Report and Order. We are, however, obligated to pay the full amount of the costs relating to the reconfiguration plan, even if those costs exceed $2.8 billion. As required under the terms of the Report and Order, a letter of credit has been secured to provide assurance that funds will be available to pay the 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 June 30, 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 $17 million during the three-month period ended June 30, 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 June 30, 2016 have exceeded $2.8 billion, not all of those costs have been reviewed and accepted as eligible by the transition administrator.

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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 Arizona, California, Texas and New Mexico. The FCC continues to grant the remaining 800 MHz public safety licensees additional time to complete their band reconfigurations which, in turn, delays our access to our 800 MHz replacement channels in these areas. In the areas where band reconfiguration is complete, Sprint has received its replacement spectrum in the 800 MHz band and Sprint is deploying 3G CDMA and 4G LTE on this spectrum in combination with its spectrum in the 1.9 GHz and 2.5 GHz bands.


Note 12.	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 88 million shares and 75 million shares as of the periods ended June 30, 2016 and 2015, respectively, in addition to 62 million total shares issuable under warrants, of which 55 million relate to shares issuable under the warrant held by SoftBank. The warrant was issued to SoftBank at the close of the merger with SoftBank and is exercisable at $5.25 per share at the option of SoftBank, in whole or in part, at any time on or prior to July 10, 2018.


Note 13.	Segments

Sprint operates two reportable segments: Wireless and Wireline.


•	Wireless primarily includes retail, wholesale, and affiliate revenue from a wide array of wireless voice and data transmission services and equipment revenue from the sale of wireless devices (handsets and tablets) and accessories in the U.S., Puerto Rico and the U.S. Virgin Islands.


•	Wireline primarily includes revenue from domestic and international wireline voice and data communication services provided to other communications companies and targeted business subscribers, in addition to our Wireless segment.

We define segment earnings as wireless or wireline operating (loss) income before other segment expenses such as depreciation, amortization, severance, exit costs, goodwill impairments, asset impairments, and other items, if any, solely and directly attributable to the segment representing items of a non-recurring or unusual nature. Expense and income items excluded from segment earnings are managed at the corporate level. Transactions between segments are generally accounted for based on market rates, which we believe approximate fair value. The Company generally re-establishes these rates at the beginning of each fiscal year. Over the past several years, there has been an industry-wide trend of lower rates due to increased competition from other wireline and wireless communications companies, as well as cable and Internet service providers.

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Segment financial information is as follows:



Statement of Operations Information	Wireless			Wireline			Corporate, Other and Eliminations			Consolidated
	(in millions)
Three Months Ended June 30, 2016
Net operating revenues	$	7,597		$	412		$	3		$	8,012
Inter-segment revenues⁽¹⁾	—			133			(133		)	—
Total segment operating expenses	(5,157		)	(526		)	128			(5,555		)
Segment earnings	$	2,440		$	19		$	(2	)	2,457
Less:
Depreciation										(1,680		)
Amortization										(287		)
Other, net⁽²⁾										(129		)
Operating income										361
Interest expense										(615		)
Other income, net										8
Loss before income taxes										$	(246	)

Statement of Operations Information	Wireless			Wireline			Corporate, Other and Eliminations			Consolidated
	(in millions)
Three Months Ended June 30, 2015
Net operating revenues	$	7,540		$	483		$	4		$	8,027
Inter-segment revenues⁽¹⁾	—			147			(147		)	—
Total segment operating expenses	(5,466		)	(621		)	142			(5,945		)
Segment earnings	$	2,074		$	9		$	(1	)	2,082
Less:
Depreciation										(1,241		)
Amortization										(347		)
Other, net⁽²⁾										7
Operating income										501
Interest expense										(542		)
Other income, net										4
Loss before income taxes										$	(37	)

Other Information	Wireless			Wireline			Corporate and Other			Consolidated
	(in millions)
Capital expenditures for the three months ended June 30, 2016	$	781		$	20		$	77		$	878
Capital expenditures for the three months ended June 30, 2015	$	2,184		$	68		$	94		$	2,346

_________________


(1)	Inter-segment revenues consist primarily of wireline services provided to the Wireless segment for resale to, or use by, wireless subscribers.

(2)

Other, net for the three-month period ended June 30, 2016 consists of $16 million of severance and exit costs and $113 million of contract termination costs, primarily related to the termination of our pre-existing wholesale arrangement with nTelos, as a result of the Shentel transaction. Losses totaling approximately $120 million relating to the write-off of leased devices associated with lease cancellations were excluded from Other, net and included within Wireless segment earnings. Other, net for the three-month period ended June 30, 2015 consists of $20 million of income resulting from a revision to our estimate of a previously recorded reserve, partially offset by $13 million of severance and exit costs.

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Operating Revenues by Service and Products	Wireless		Wireline		Corporate, Other and Eliminations⁽¹⁾			Consolidated
	(in millions)
Three Months Ended June 30, 2016
Wireless services	$	5,943	$	—	$	—		$	5,943
Wireless equipment	1,496		—		—			1,496
Voice	—		181		(69		)	112
Data	—		43		(22		)	21
Internet	—		302		(41		)	261
Other	158		19		2			179
Total net operating revenues	$	7,597	$	545	$	(130	)	$	8,012

Operating Revenues by Service and Products	Wireless		Wireline		Corporate, Other and Eliminations⁽¹⁾			Consolidated
	(in millions)
Three Months Ended June 30, 2015
Wireless services	$	6,351	$	—	$	—		$	6,351
Wireless equipment	990		—		—			990
Voice	—		233		(82		)	151
Data	—		49		(20		)	29
Internet	—		328		(44		)	284
Other	199		20		3			222
Total net operating revenues	$	7,540	$	630	$	(143	)	$	8,027

_______________


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


Note 14.	Related-Party Transactions

Sprint has entered into various arrangements with SoftBank or its controlled affiliates (SoftBank Parties) or with third parties to which SoftBank Parties are also parties, including for international wireless roaming, wireless and wireline call termination, real estate, logistical management, and other services.

Brightstar

We have arrangements with Brightstar US, Inc. (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 provides, 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 three-month periods ended June 30, 2016 and 2015, we incurred fees under these arrangements totaling $19 million and $33 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.

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Amounts included in our consolidated financial statements associated with these arrangements with Brightstar were as follows:



Consolidated balance sheets:	June 30, 2016		March 31, 2016
	(in millions)
Accounts receivable	$	184	$	197
Accounts payable	$	70	$	96



Consolidated statements of comprehensive loss:	Three Months Ended June 30,
	2016		2015
	(in millions)
Equipment revenues	$	276	$	375
Cost of products	$	296	$	418

SoftBank

In November 2015 and April 2016, Sprint entered into handset sale-leaseback transactions with MLS, a company formed by a group of equity investors, including SoftBank, to sell and leaseback certain devices, which are currently being leased by our customers, for total cash proceeds of approximately $2.2 billion. Softbank's equity investment in MLS totaled approximately $79 million. BrightStar will provide reverse logistics and remarketing services to MLS with respect to the devices.

In April 2016, Sprint sold and leased back certain network equipment to Network LeaseCo. The network equipment acquired by Network LeaseCo, which is consolidated by us, was used by them as collateral to raise approximately $2.2 billion in borrowings from external investors, including $250 million from SoftBank. Principal and interest payments on the borrowings from the external investors will be repaid in staggered, unequal payments through January 2018 (See Note 3. Funding Sources).

All other transactions under agreements with SoftBank Parties, in the aggregate, were immaterial through the period ended June 30, 2016.

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Note 15.	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 three-month period ended June 30, 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 $563 million.

Under the Subsidiary Guarantor's revolving bank credit facility and certain other finance agreements, the Subsidiary Guarantor is currently restricted from paying cash dividends to the Parent/Issuer 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 into the Tranche 1 transaction to sell and leaseback certain leased devices. In April 2016, Sprint entered into the Tranche 2 transaction to sell and leaseback certain leased devices and a Network Equipment Sale-Leaseback to sell and leaseback certain network equipment. In connection with the Receivables Facility, Tranches 1 and 2 and the Network Equipment Sale-Leaseback, Sprint formed certain wholly-owned consolidated bankruptcy-remote SPEs and SPE Lessees that are included in the non-guarantor subsidiaries condensed consolidated financial information. Each SPE and SPE Lessee is a separate legal entity with its own separate creditors who will be entitled, prior to and upon the liquidation of the SPE or SPE Lessee, to be satisfied out of the SPE or SPE Lessee’s assets prior to any assets in the SPE and SPE Lessee becoming available to Sprint (see Note 3. Funding Sources).

We have accounted for investments in subsidiaries using the equity method. Presented below is the condensed consolidating financial information.

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CONDENSED CONSOLIDATING BALANCE SHEET



	As of June 30, 2016
	Parent/Issuer		Subsidiary Guarantor		Non-Guarantor Subsidiaries		Eliminations			Consolidated
	(in millions)
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	3,338	$	442	$	—		$	3,780
Short-term investments	—		1,269		35		—			1,304
Accounts and notes receivable, net	196		—		1,113		(196		)	1,113
Device and accessory inventory	—		—		816		—			816
Prepaid expenses and other current assets	—		15		1,934		—			1,949
Total current assets	196		4,622		4,340		(196		)	8,962
Investments in subsidiaries	19,502		23,727		—		(43,229		)	—
Property, plant and equipment, net	—		—		19,715		—			19,715
Due from consolidated affiliate	42		17,055		—		(17,097		)	—
Note receivable from consolidated affiliate	10,381		272		—		(10,653		)	—
Intangible assets
Goodwill	—		—		6,575		—			6,575
FCC licenses and other	—		—		40,175		—			40,175
Definite-lived intangible assets, net	—		—		4,157		—			4,157
Other assets	—		197		614		—			811
Total assets	$	30,121	$	45,873	$	75,576	$	(71,175	)	$	80,395

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	—	$	—	$	1,841	$	—		$	1,841
Accrued expenses and other current liabilities	238		571		3,632		(196		)	4,245
Current portion of long-term debt, financing and capital lease obligations	—		3,045		2,558		—			5,603
Total current liabilities	238		3,616		8,031		(196		)	11,689
Long-term debt, financing and capital lease obligations	10,381		11,447		9,526		—			31,354
Deferred tax liabilities	—		—		14,006		—			14,006
Note payable due to consolidated affiliate	—		10,381		272		(10,653		)	—
Other liabilities	—		927		2,917		—			3,844
Due to consolidated affiliate	—		—		17,097		(17,097		)	—
Total liabilities	10,619		26,371		51,849		(27,946		)	60,893
Commitments and contingencies
Total stockholders' equity	19,502		19,502		23,727		(43,229		)	19,502
Total liabilities and stockholders' equity	$	30,121	$	45,873	$	75,576	$	(71,175	)	$	80,395

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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
Deferred tax liabilities	—		—		13,959		—			13,959
Note payable due to consolidated affiliate	—		10,377		245		(10,622		)	—
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

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CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE (LOSS) INCOME



	For the Three Months Ended June 30, 2016
	Parent/Issuer		Subsidiary Guarantor		Non-Guarantor Subsidiaries		Eliminations		Consolidated
	(in millions)
Net operating revenues	$	—	$	—	$	8,012	$	—	$	8,012
Net operating expenses:
Cost of services (exclusive of depreciation and amortization included below)	—		—		2,099		—		2,099
Cost of products (exclusive of depreciation and amortization included below)	—		—		1,419		—		1,419
Selling, general and administrative	—		—		1,917		—		1,917
Severance and exit costs	—		—		16		—		16
Depreciation	—		—		1,680		—		1,680
Amortization	—		—		287		—		287
Other, net	—		—		233		—