Sprint - Nextel 2015 Annual Report Download - page 97

Table of Contents
Index to Consolidated Financial Statements
SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
government-sponsored debt securities, corporate debt securities, municipal securities, bank-related securities, and credit and debit card transactions in process. The
carrying amounts approximate fair value.
Installment Receivables
Beginning in October 2015, Sprint sold and derecognized all installment receivables as well as the related allowances and deferred interest. Prior to
initiating sales of installment receivables, the carrying value of installment receivables approximated fair value because the receivables were recorded at their
present value, net of the deferred interest and allowance for credit losses. At the time of the installment sale, we imputed the interest on the installment receivable
and recorded it as a reduction to revenue and as a reduction to the face amount of the related receivable. Interest income was recognized over the term of the
installment contract in service revenue.
We categorized our installment receivables as prime and subprime based upon subscriber credit profiles and as unbilled, billed-current and billed-past
due based upon the age of the receivable. We used proprietary scoring systems that measure the credit quality of our receivables using several factors, such as
credit bureau information, subscriber credit risk scores and service plan characteristics. Payment history was subsequently monitored to further evaluate credit
profiles. Prime subscriber receivables were those with lower delinquency risk and subprime subscriber receivables were those with higher delinquency risk.
Subscribers within the subprime category may have been required to make a down payment on their device and accessory purchases. Installment receivables for
which invoices were not yet generated for the customer were considered unbilled. Installment receivables for which invoices were generated but which were not
past the contractual due date were considered billed - current. Installment receivables for which invoices were generated and the payment was approximately ten
days past the contractual due date were considered billed - past due. Account balances were written-off if collection efforts were unsuccessful and future collection
was unlikely based on the length of time from the day accounts become past due.
Allowance for Doubtful Accounts
An allowance for doubtful accounts is established to cover probable and reasonably estimable losses. Because of the number of subscriber accounts, it
is not practical to review the collectability of each of those accounts individually to determine the amount of allowance for doubtful accounts each period, although
some account level analysis is performed with respect to large wireless and wireline subscribers. The estimate of allowance for doubtful accounts considers a
number of factors, including collection experience, aging of the remaining accounts receivable portfolios, credit quality of the subscriber base and other qualitative
considerations, including macro-economic factors. Account balances are written-off if collection efforts are unsuccessful and future collection is unlikely based on
the length of time from the day accounts become past due. Amounts written off against the allowance for doubtful accounts, net of recoveries and other
adjustments, were $612 million , $752 million , $106 million and $98 million for the Successor years ended March 31, 2016 and 2015 , the three-month transition
period ended March 31, 2014 and year ended December 31, 2013 , and $374 million and $105 million for the Predecessor 191-day period ended July 10, 2013 and
the unaudited three-month period ended March 31, 2013, respectively. See Note5.InstallmentReceivablesfor additional information as it relates to the allowance
for doubtful accounts specifically attributable to installment receivables.
Device and Accessory Inventory
Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. The Company sells wireless devices
separately or in conjunction with a service contract. When the device is sold below cost, the cost and related revenues generated from the device sales are
recognized at the time of sale. The cost and related revenues from device sales are not recognized prior to the time of sale because the promotional discount
decision is generally made at the point of sale and because the cost of the device on sales under our subsidy program is expected to be recovered through service
revenues.
The net realizable value of devices and other inventory is analyzed on a regular basis. This analysis includes assessing obsolescence, sales forecasts,
product life cycle, marketplace and other considerations. If assessments regarding the above factors adversely change, we may sell devices at a higher prices or
record a write-down to inventory for obsolete or slow-moving items prior to the point of sale.
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