Sprint - Nextel 2014 Annual Report Download - page 105

Table of Contents
Index to Consolidated Financial Statements
SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-22
Clearwire Acquisition and SoftBank Merger. As a result, the pro forma financial information presented above excludes a net
gain of $1.4 billion and acquisition related costs of approximately $169 million.
This pro forma financial information has been prepared based on estimates and assumptions, which management
believes are reasonable, and is not necessarily indicative of the consolidated financial position or results of operations that
Sprint would have achieved had the Clearwire Acquisition and/or the SoftBank Merger actually occurred at January 1, 2012
or at any other historical date, nor is it reflective of our expected actual financial positions or results of operations for any
future period.
Accounts Receivable Facility
Transaction Overview
On May 16, 2014, certain wholly-owned subsidiaries of Sprint entered into a two-year committed facility
(Receivables Facility) to sell certain accounts receivable (the Receivables) on a revolving basis, subject to a maximum
funding limit of $1.3 billion. The available funding varies based on the amount of eligible receivables (as defined in the
Receivables Facility). In connection with the Receivables Facility, Sprint formed wholly-owned subsidiaries that are
bankruptcy-remote special purpose entities (SPEs). Pursuant to the Receivables Facility, certain Sprint subsidiaries
(Originators) transfer Receivables to the SPEs. Receivables contributed by the Originators to the SPEs and available to be
sold to the Conduits primarily consisted of installment receivables and wireless service charges due from subscribers. The
SPEs then may sell the Receivables to a bank agent on behalf of unaffiliated multi-seller asset-backed commercial paper
conduits (Conduits) or their sponsoring banks. Sales of eligible Receivables by the SPEs, once initiated, 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 servicer's and the Originators' obligations under the Receivables Facility. The net fees associated with the Receivables
Facility are recognized in selling, general and administrative expenses on the consolidated statements of operations. On April
24, 2015, the Receivables Facility was amended to include up to $2.0 billion of additional funding as a result of including
installment receivables in the definition of eligible receivables under the Receivables Facility, which had the effect of
increasing the maximum funding limit to $3.3 billion, of which $1.4 billion was available to be drawn for cash as of April 30,
2015. Additionally, the expiration date was extended to March 31, 2017.
Receivables sold to the Conduits are treated as a sale of financial assets. Upon sale, Sprint derecognizes the
Receivables, as well as the related allowances, and recognizes the net proceeds received in cash provided by operating
activities. The difference between the Receivables sold and the cash received, which represents a financial asset due to Sprint
from the Conduits, is realizable by Sprint contingent upon the collections on the sold Receivables.
On March 31, 2015, of the $3.5 billion of Receivables contributed by the Originators to the SPEs, the SPEs sold
approximately $1.8 billion of service Receivables to the Conduits in exchange for $500 million in cash (reflected within the
change in accounts and notes receivable on the consolidated statement of cash flows) and a $1.3 billion receivable from the
Conduits. The receivable due to Sprint from the Conduits is classified as a trading security and is recorded at its estimated
fair value of $1.2 billion in "Prepaid expenses and other current assets" on the consolidated balance sheet. The fair value of
the receivable due to Sprint was estimated using a discounted cash flow model, which relied principally on unobservable
inputs such as the nature of the sold Receivables and subscriber payment history. Changes in the fair value of the receivable
due to Sprint are recognized in operating (loss) income on the consolidated statements of operations. As of March 31, 2015,
there was approximately $460 million of available funding under the Receivables Facility. In April 2015, Sprint elected to
remit payments received to the Conduits to reduce the funded amount to zero.
Each SPE’s sole business consists of the purchase or acceptance through capital contributions of the Receivables
from the Originators and the subsequent retransfer of, or granting of a security interest in, such Receivables to the bank agent
under the Receivables Facility. In addition, 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 or value in the
SPE becoming available to the Originators or Sprint. Accordingly, the assets of the SPE, including the $1.7 billion of
installment receivables contributed by the Originators and held by the SPEs and the $1.3 billion receivable due to Sprint from
the Conduits as of March 31, 2015, are not available to pay creditors of Sprint or any of its affiliates (other than any other
SPE), although collections from these receivables in excess of amounts required to pay the investment, yield and fees of the